Yes, technically, there is an uptrend in the dynamics of oil , and market sentiment is in favor of purchases, but these are all temporary phenomena and we will further explain why.
Let's start with the reasons for the current growth. By and large there are several of them. The first and main one for today is US sanctions against Iran and a sharp decline in oil exports from this country. Further, we note the continuing disintegration of the Venezuelan economy, which has already led to a drop-in oil production in this country, the richest in oil reserves in the world. In addition, the last meeting of OPEC showed that the current status quo in the market from the point of view of the OPEC member countries remains (it is not planned to increase production yet).
Despite the importance of each of these factors and their impact on the oil market, we believe that all of them are temporary, but the changes that occur in the world in terms of energy consumption patterns are more significant and permanent.
Speaking about the factors that can trigger oil sales, we note the following:
- The basic concern of oil buyers - a decline in demand for an asset because of a slowdown in China’s economy, which in turn is threatened by Trump’s trade wars. This factor has become particularly relevant this week, because after the conclusion of a new agreement between the United States, Mexico and Canada, Trump again has his hands free in terms of intensifying the trade war with China. So, the attention of the markets can be switched to this moment, and then oil will fall in;
- the growth of supply in the oil market from the US - it is not only about record volumes of oil production in the USA and the growing export of oil from the USA, but also the possible use of US strategic reserves and their launch into the market. Given the size of US strategic reserves (over 500 million barrels of oil ), supply on the market can grow very sharply, which will inevitably provoke a decline in oil prices;
- drop in demand for oil – there is some in the conjuncture of the oil market. The reason is that in the fall many refineries are closing for repairs, which leads to a reduction in oil demand (according to Dow Jones Agency, October is the worst month for the Brent brand relative to the average monthly dynamics since 1990, while November is considered the most unfortunate month for WTI). The result is a drop-in oil prices;
- the growth of supply in the oil market from Saudi Arabia - the kingdom soon may increase production volumes by 0.5 million barrels per day, which essentially compensates the negative effect on the supply of oil on the market due to sanctions against Iran;
- analysis of the forecasts of leading banks and investment companies shows that most of them consider current prices to be too high and predicts their decline in the foreseeable future.
So, we recommend selling Brent oil with minimal targets around $ 80 per barrel, and in the case of a full-fledged correction and reversal of the current trend, then we can talk about more optimistic marks in bottoms 70.