03.07.201900:45 Forex Analysis & Reviews: Oil: puppeteers and puppets

When the OPEC summit turns into a farce, one should not be surprised that cartel members feel like outcasts. At the G20 meeting, Russian President Vladimir Putin was impatient to tell his colleagues some important news, which he did. The Russian leader said he agreed with the proposal of Saudi Arabia to prolong the agreement to reduce oil production by 6 or 9 months. "Most likely, we will extend it by 9". A natural question arises, what did the rest of OPEC do at the July 1-2 meeting if Moscow and Riyadh had already made a decision?

According to Tehran, who threatened to impose a veto, but in the end still agreed, the cartel may eventually end its existence. All contracts are concluded between Russia and Saudi Arabia, the rest of OPEC members are forced to raise their hands like puppets. However, it is necessary to recognize that the conditions of any market are made by strong players. Only an alliance of the largest producers is able to stop the invasion of American shale companies in the world oil market. Mining in the United States rose to 12.16 million b/d in April. If it were not for the prolongation of the Vienna agreement until the end of March 2019, it would have been difficult for the "bulls" in Brent and WTI to count on a continuation of the rally.

0.8 million out of 1.2 million bbl (about 1.2% of world demand for black gold) will be obliged to reduce OPEC, the rest - Russia and other producing countries. This will stabilize the market and cut off oxygen to the growth of global stocks. Their increase in recent months has become a catalyst for the peak of Brent and WTI.

Dynamics of global oil reserves

Iran rolls barrels to the Russian Federation absolutely in vain. Without its participation it would be difficult to expect victory over the Americans. Moscow can afford oil at $40 a barrel, but Tehran needs prices to rise as high as possible. The White House's sanctions against it reduced local exports of black gold from 2.8 million bpd in April 2018 to 1 million bpd in November 2018 - April 2019. The end of the grace period for Iranian oil buyers, according to FGE consulting company, could pull down the figure to 0.5 million b/d, of 0.2 million b/d will be accounted for by China, which currently closes its eyes to the threats of the United States to deal with bypassing the sanctions countries.

After OPEC revealed the cards, investor attention shifted to issues such as the potential improvement in global demand amid the de-escalation of the Washington-Beijing trade conflict and the sluggish dynamics of the manufacturing sector throughout the world. Business activity in this area of the US economy collapsed to its lowest level since autumn 2016, the global PMI closes below the critical level of 50 for the second month in a row, which has not happened to it since 2012.

Technically, a necessary condition for the continuation of Brent's upward course in the direction of $68.4 and $72.8 seems to be keeping bulls above support at $64.1 per barrel. If this level is left for the bears, the risks of updating the May lows and the implementation of the 5-0 pattern will increase.