30.06.202013:43 Forex Analysis & Reviews: Oil

The strengthening of the US dollar, the deterioration of the epidemiological situation in the US, and rumors about the resumption of Libyan oil exports in previous volumes do not allow the "bulls" for Brent and WTI to continue the rally. Although the North Sea variety has strengthened by 17% since the beginning of June, the Texas variety by 10%, and the black gold market situation looks significantly better than in March-April, alarm signals about global demand problems and the W-shaped recovery of the American economy are bringing the "bears" out of hibernation.

The rise in the number of infected in the United States to record highs gives rise to talk of a second lockdown, reduces demand for gasoline, and leads to an increase in American oil reserves to a record high of 540.7 million barrels. At the same time, concerns about a double-dip recession are warming the ears of fans of safe-haven assets, primarily the US dollar. Black gold is quoted in the US currency, so the growth of its exchange rate often leads to sales of Brent and WTI.

If Libya manages to solve its internal problems and return to pre-crisis export levels of 1.1 million b/d (currently about 0.1 million b/d), OPEC will find it much more difficult to stabilize the oil market. This fact, paired with weak American demand for gasoline, the struggles of many refiners with low margins, the strengthening of the dollar, and the fact that global consumption of black gold is still far from pre-pandemic levels, is putting the market back in contango mode. Long-term futures contracts are cheaper than short-term ones, which is encouraging for the bears.

Dynamics of oil market conditions

At the same time, you need to understand that someone will face a V-shaped recovery, someone-with a U-shaped, and someone will be forced to wind down the business altogether. According to Standard Chartered research, only 9 of the 20 countries that are the largest consumers of black gold have an increase in the number of COVID-19 infections. In Europe, the indicator is declining, in China, it is scanty, while the rapid growth of the economy of the Middle Kingdom allows us to expect that global demand for oil will be alright.

According to Bloomberg, the largest processors of black gold in China, which account for about 5 million b/d of imports, which is equivalent to a fifth of OPEC production, intend to create a group that will participate in tenders for the purchase of African, Russian and Brazilian oil. A centralized increase in demand usually leads to an increase in prices. Let's not forget that Beijing must fulfill its obligations to the United States to increase energy purchases. In January-May, we were talking about 3% of the total volume, however, the rapid growth of the Asian economy hints that everything will be fine.

Dynamics of Chinese oil imports

Technically, the situation is under the control of the "bulls" for Brent. Futures quotes are moving within the ascending trading channel, and a break in the support in the form of moving averages will signal a correction in the direction of $ 37.8, $ 36.8, and $ 36.1 per barrel. From these levels, the North Sea variety should be actively purchased.

Brent, the daily chart