Brent: you dream only of a shortage

Quotations of futures for the North Sea variety managed to push him off of the three-week low thanks to Saudi Arabia’s announcement of an unprecedented decline in exports. Riyadh is ready to reduce the supply of black gold in November to 7.2 million barrels per day, which is significantly lower than the demand, which is 7.7 million barrels per day. Investors digested the information for a long period, taking account of what is the most important factor. Is it the growth of exports for the month of September, which is 6.7 million barrels per day, or is this the decline since the beginning of the year, which is 7.8 million barrels per day in January and from the level of the average of the values of the indicator for the period 2012-2016, which is 8.2 million barrels per day in November 2016? The spirit eventually won, and as the price crept up slowly but for how long?

If there is not enough oil in one place, so there is much need for oil in it. This leads to the growth of Brent, the expansion of the gap with the WTI, and the increase of american exports. By prohibiting the supply of black gold abroad for the past 40 years, the united States was able to bring the price to a record value of nearly 2 million barrels per day by the autumn. They openly oppose the OPEC on the market and the cartel’s secretary general, Mohammed Barkindo, can only appeal to the American producers to adhere to the Vienna agreement, to reduce the production, and the balance of the market. According to the estimates of the OPEC, global black gold reserves currently above the average of 5 years to about 145 million barrels.

It is very doubtful that the leader of a cartel hear someone in North America. Most likely, the quotes of Brent and WTI reached their extremes at the end of the month of September and are currently in the process of trying to determine the lower limit of the long-term consolidation of the range. At least the hedge funds have begun to gradually wind down on the net the nostalgia of the North Sea variety. At the end of the week of 3 October, they decreased by 0.9% to 504263 contracts, while the Texas, the a was down 1%, to 249323 contracts.

Dynamics of the net positions of speculative on the Brent and WTI

Source: Bloomberg.

The oil pressure is caused by the expectations of Hurricane Nate hit the coast of the Gulf of Mexico. The decline in the demand for the black gold from the refinery, is a «bearish» factor, as it allows us to count on growth in the reserves. So far, according to surveys by Bloomberg experts, the volume of reserves will be reduced by 750 thousand barrels by results of the week ending 6 October.

Support for the Brent and WTI seen in the weakening of the U.S. dollar in advance of the publication of the September FOMC meeting. The futures market, estimates the chances of an increase in the federal funds rate in December to 88%. There are still a lot of time until the last meeting of the Fed for the current year. Anything can happen, including a decrease of the probability of the third act of currency restriction in 2017. In such circumstances, speculators prefer to be reinsured and reduce the size of their long lines in the dollar, which has led to a correction in the short term, the upward trend of the dollar index.

Technically, the fact that the «bulls» Brent was able to catch a important support at $55.9 per barrel, which allows us to keep the faith in the resumption of the uptrend. However, if the «bears» manage to return to the quote of $55 and at that level by the storm, the risks of restoration in development will increase significantly.

Brent, daily chart

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