It is done! OPEC and Russia gave the market what they expected, having prolonged the agreement on the reduction of production until the end of 2018. Riyadh believes that this will allow it to withdraw the size of global reserves to the level of 5-year averages in the second or third quarters of next year and will accordingly balance market. It is unlikely that there will be a significant decline in the indicator in the next six months against the backdrop of a seasonal fall in demand for petroleum products. On the contrary, the heightened risks of growth in shale production and fixing profits on long positions increase the likelihood of correction in Brent and WTI.
OPEC has done its job and the cartel can go. The attention of investors is now focused on American manufacturers. The rise in prices above $ 60 per barrel can easily increase production to 10 million bpd or higher. The indicator is already close to the maximum mark of 9.63 million bpd, which took place in 2015. At the same time, the number of drilling rigs from Baker Hughes returned to a 2.5-year peak.
The dynamics of WTI and oil production in the US
Source: Bloomberg.
In conditions in wherein black gold is unlikely to see new growth drivers in the coming weeks while factors of increasing US inventories and production intensify the risks of retracement, many hedge funds and other speculators will have a desire to fix profits. As a result, the gradual unloading of net long routes for Brent, which reached the second largest maximum mark for the whole history of accounting by the end of the week, is capable of launching an avalanche of correction. The situation is exacerbated by the feeling of deja vu. A year ago, the extension of the Vienna agreement triggered a drop in prices due to the implementation of the "Buy on the rumor, sell on facts" principle. However, is it worth it for the "bulls" of Brent and WTI to lose heart?
Goldman Sachs believes that it's not. The bank raised the forecast of the average value of the North Sea grade in 2018 from $ 58 to $ 62 per barrel and of Texas from $ 55 to $ 57 per barrel. In their opinion, shale producers will not force events and improving global demand will allow oil to feel confident.
Indeed, is it worth it to expect a deep correction following the pattern of late 2016 up to early 2017? All three key drivers of price increases in June-November of this year are still in the game. The state of health of the global economy continues to improve as can be clearly seen from the indexes of business activity in the leading countries of the world. Geopolitical tensions in the Middle East at any time can make itself felt while OPEC and Russia are not abandoning their plans to balance the market. At the same time, the US dollar is not in a hurry to win back the positive factor for the passage of the tax reform project through the US Congress. In such conditions, the correction potential looks limited and consolidation risks increase.
Technically, quotes falling below the support level at $ 60.75 per barrel will activate the reversal pattern 1-2-3 and will increase the risks of a pullback in the direction of $ 59.5 and $ 58.3. To restore the uptrend, "bulls" should be stormed by resistance at the level of $ 64 per barrel.
Brent, daily chart
