21.07.202013:17 Forex Analysis & Reviews: Oil became crowded in the corridor

Consolidation in the oil market could not continue indefinitely, and as soon as fresh drivers appeared, Brent exited the $ 40-44 per barrel trading corridor. Until then, the market had been weighing whether a reduction in OPEC+ production commitments and an increase in the number of infected people in the US, Brazil, India and other countries could outweigh a recovery in demand from China and the Eurozone. Investors were in no hurry to force events, however, the EU's acceptance of the Franco-German proposal for a fiscal stimulus of €1.8 trillion changed the balance of power.

The market was dubious about the improvement in US statistics on employment, retail sales, industrial production, and business activity, believing that the faster the US economy opens, the worse things will be with COVID-19. Nevertheless, oil reserves in the United States in the week to July 10 decreased by the largest amount for the year (8.32 million barrels) and most likely continued to do so at the end of the five days to July 17. According to Bloomberg experts, we are talking about 750 thousand b/d. The dynamics of the indicator shows that despite the unfavorable epidemiological situation, domestic demand for black gold in the United States is growing, which cannot but please the "bulls" for Brent and WTI.

On the other hand, flooding in China has hit demand from one of the world's largest oil consumers, and the decision of OPEC+ to cut production by about 8.1 million b/d from August to November, rather than by 9.7 million b/d as in May-July, is a bearish factor for black gold. It is not surprising that speculators did not know what to do, and rushed from one extreme to the other: at the end of the week to July 14, they purchased about 24 million barrels of 6 most actively traded futures and options contracts for oil and petroleum products, and five days earlier sold 21 million barrels. Currently, the net long position (642 million barrels) corresponds to its average value over the past 7 years (641 million barrels), as well as the ratio of long and short positions (4.2 to 1 vs. 4.4 to 1).

The uncertainty of the opponents resulted in consolidation, which, according to market principles, had to give way to a new trend.

Dynamics of main oil grades

The catalyst for the exit of Brent quotes beyond the trading channel of $ 40-44 per barrel was information about successful trials of vaccines against COVID-19 and the positive verdict of the EU on fiscal stimulus. The first news pushed up US stock indices, the second contributed to the weakening of the US dollar and increased the likelihood of a rapid recovery of European GDP, which is a "bullish" factor for oil.

In general, the return of the global economy to the trend faster than initially expected will allow the black gold market to easily absorb 1.6-2 million b/d in the form of increased production from OPEC+. The rally of the North Sea variety in the direction of the target by 161.8% on the AB=CD ($ 51) pattern continues, long positions formed from the level of $ 44 per barrel should be held and increased on declines.

Brent, the daily chart