Due to the growth of business activity in the USA and China, oil managed to close the quarter with the best result in a decade. Futures quotes for Brent and WTI climbed to the area of 5-month highs amid the rise of the March index of supply managers of the Middle Kingdom to the semi-annual peak and the growth of its American counterpart from 54.2 to 55.3. The Chinese economy is gradually recovering and the slowdown of GDP in United States may not be as serious as previously assumed. If so, then demand in black gold will play on the side of the "bulls". Given some weakness of the American production, this circumstance allows them to drive quotes to the north.
According to Bloomberg experts, oil production by 14 OPEC countries fell by 295 thousand b/d to 30.385 million b/d in March. The indicator is ready to fall for the fourth month in a row, primarily due to the actions of Saudi Arabia. Riyadh is seriously determined to stabilize the market and for this, it reduces production to a 4-year minimum. Along with Washington's willingness to increase economic sanctions against Iran and Venezuela, this circumstance turns on the green light in front of the Brent and WTI bulls. Hedge funds do not get tired of increasing speculative long positions in both classes as prices are rising.
Dynamics of speculative positions on Brent and WTI
I have repeatedly noted that in the supply area, there is a process of rope pulling between OPEC and American producers. Therefore, black gold often responds to changes in demand. In this regard, the increased likelihood of the termination of the US-Chinese trade war and the economic recovery of the Middle Kingdom is positive news for the asset being analyzed.
Moreover, the slowdown in domestic demand in the United States under the influence of the traditionally bad weather for the first quarter, as well as the shutdown of the US government and other factors affect the production. The number of rigs from Baker Hughes from mid-November decreased by 72 to 816 and the report of the US Energy Information Administration recorded the first decline in production from May 2018 by 90 thousand b/d to 11.9 million b/d. I do not think that this is a turning point of the uptrend. The current oil market conditions are extremely favorable for companies from the States. By taking advantage of high prices, they are able to double the volume of hedging operations. This will allow extracting oil in the future even in the face of a fall in its value.
Black gold goes up against the strong US dollar. The bulls on the USD index are not scared of either the increase in the likelihood of a reduction in the federal funds rate in 2019 or the verbal intervention of the White House, which calls on the Fed to lower the rate from 2.5% to 2%. In my opinion, an infinitely long upward trend in the US currency cannot continue in the background of the completion of the economic cycle.
Technically, a breakthrough of the resistance at $ 68.6 per barrel creates prerequisites for the continuation of the Brent rally in the direction of $ 72.9 (61.8% of the CD wave) as part of the transformation of the Shark pattern at 5-0.
Brent daily chart
