Brent is deaf in one ear




While the Kurdistan is at war with the federal forces from Iraq, OPEC is optimistic about the stabilization of the situation on the oil market, and while Brent is in the process of preparing for the first time in two years for the assault on the psychologically important level of $60 per barrel, the united States is in the process of changing the world for themselves. The growth of the price difference between the North Sea and Texas oil varieties with a higher level from 2015 onwards, led to an increase in UNITED states exports and the displacement of competitor producers of the world market. The united States is actively in its place, increasing its share. It only remains to ensure price risks, and we may continue what has been started. According to the estimates of London brokerage PVM, us companies covered 70% to 80% of their supply by 2017, and only 25% by 2018. The increase in price creates an excellent opportunity for the sale of futures contracts under project risk management and puts a ceiling for the WTI.

The growth of the spread of Brent-WTI seems to be quite logical in the context of the continuous increase of the production in the united States and the implementation of the Vienna conventions of OPEC. Since November of 2016, the cost of the North Sea, the variety has increased approximately 20%, which allows the Secretary-General Mohammed Barkindo to speak with optimism about the stabilization of the situation on the market. Russia and Saudi Arabia, which account for about one-fifth of the world’s production of crude oil, are ready to extend the terms of the agreement, at least until the end of 2018, and calls on other countries to join them. British Petroleum, which considers that, if one takes into account supply and demand, the prices are where they should, but the presence of geopolitical risks increases the probability of Brent moving above $60 per barrel.

Commerzbank, on the contrary, assumes that the rally is exhausted. The market is deaf in one ear, as it hears only «bullish» new and unknown «bearish». At the same time, the growth of long differential for Brent and WTI to the maximum level in the history, increases the risk of reversal. By the end of the week, by October 17, speculators had increased their net long positions in the North Sea quality of 1.2%, while long in Texas, on the contrary, decreased by 8.2%.

The dynamics of speculative positions to Brent

Source: Bloomberg.

The dynamics of speculative positions on WTI

Source: Bloomberg.

However, the bulls have a trump card up his sleeve, which is rarely the reminder: since the price has exceeded $ 100 a barrel, mining companies drastically reduced the volume of its investments, which sooner or later will affect the production of the black gold. During this time, investors are in the midst of discussing the seizure by federal forces of Iraq of the oil-rich Kurdish region of Kirkuk and to assess how supply may decrease. Geopolitics continues to support the «bulls» of the Brent and the WTI support, however, the question that often arises in the order of the day: where is the ceiling?

Technically, the inability of the «door» to bring Brent quotes rising trading channel indicates their weakness. Update September high of nearly $59.5 per barrel enables the model AB = CD with target to $60.7 and $62.3 per barrel.

Brent, daily chart



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