The one who rises high, falls painfully. The growth of price of Brent has 26 months against the backdrop of an increase of net long positions of financial managers to record levels ended — a fiasco of the bulls. The fall of the senior has been due to the mass closure of long after it became known that Turkey was bluffing, and OPEC members preferred to increase in September instead of reducing production. Its contribution to the negative was made by the International Energy Agency, who said that the current level of oil production by the cartel, the growth of U.s. production and the assets of the accumulation of reserves by China is going to create problems for the reduction of the world’s reserves and move the market to a stable rate of deficit.
Until now, only one thing is clear: the higher the price, the less chance of an extension of the agreement of Vienna of the OPEC, and the greater is the likelihood of increased shale production in the united States. The IEA forecasts that the last figure in 2018 will see an impressive growth of 1.1 million b/d, which is a serious «bearish» driver of the Brent and the WTI.
The situation is well understood by big banks. According to the median forecast of 15 of them, the average cost of Brent in the next year will be $53 per barrel, while Texas will be$ 50. The oil will not be able to overcome and definitively putting a foot above the psychologically important $60 even in 2019: forecast of the average Brent price has been reduced from $72 in September 2016 $57.91 a barrel.
The Projections of oil prices
Source: Wall Street Journal.
In the short-term period, the downward movement side plays on the information regarding the growth of the production by the OPEC countries, in the medium term, on the beginning of the unfavourable season, as the closure for maintenance of U.s. refinery led to a reduction of the demand and growth of u.s. equities. In addition, the return on the market the idea of the revival of commerce supports the U.S. dollar, which negatively affect the prices of Brent and WTI.
It is not known what are the games that OPEC is playing, but according to a median estimate by Bloomberg experts, in September, the cartel has reduced their compliance with their obligations of reduction of oil production from 88% to 80%. The production has increased from 120, 000 b/d and rises to 32.83 million b/d). The index has increased: in Saudi Arabia, for 60, 000 b/d to 10.06 million b/d, Kuwait by 50, 000 b/d to 2.76 million b/d and in other countries. It is possible that this is a response to the rise in prices in the context of the referendum on the independence of Kurdistan. OPEC understands that, at a Brent price at 60 $per barrel, it would be illusory to compete with the American producers.
Thus, the strengthening of the dollar, the seasonal factor, the activity of the understanding, the growth of the activity of extractive companies in the united States and the gradual reduction of net oil lagoons to create a solid basis for the reduction in the prices of Brent and WTI.
Technically, after the implementation of a target of 224% on the pattern AB=CD, a natural restoration monitoring. To develop a correction for «bear», it is necessary to break the diagonal support in the form of the lower border of the ascension of the trading channel. On the contrary, the inability of sellers to keep the price below $56 per barrel will be the proof of their weakness.
Brent, daily chart