Crude Oil Overview: A new bubble
Crude Oil prices, which tested $ 150 / barrel levels in 2008, had a rapid collapse with the explosion of the bubble in the US Housing.
The rally, which started at $ 36 levels, decelerated in 2011 at $ 110. Prices, which remained stable between $ 110 and $ 75 for a while, saw a rapid sell-off in 2014.
We were listening to the same symphony as the prices tested $ 110 in the summer of 2014. The bulls convinced the market that prices would break $ 110 this time and test $ 150.
While the bulls were trying to push the price up, global macroeconomic indicators were drawing a different scenario.
Baltic Dry Index was at 5 years lows.
Organizations such as the IMF, WTO, and IEA were revising their global growth and global oil demand expectations downward.
Eventually the expected and inevitable happened, and prices entered a rapid collapse, breaking $ 90, then $ 75.
With the closing below $ 75, the long-term bear market has also started. And oil prices are still trading in the bear market.
What are the macroeconomic reasons that will cause the prices to enter the bull market in these times when $ 100 levels are being talked about again?
Any rally without strong fundamentals creates nothing but a bubble.
Positive for oil prices:
- SA insistence on cutting the supply. ( Priced in )
- The possibility of re-opening of economies by loosening quarantine measures due to vaccine ( Priced in )
- Weak dollar and future inflation expectations
Demand/Supply :
The International Energy Agency stated in its latest report that it expects daily oil demand to increase by 5.4 million barrels to 96.4 million, and 60% of the demand lost during 2020 will return. On the supply side, US production is expected to increase by 11.2 million barrels per day for 2021 (940,000 barrels decrease per day in 2020). Canada has increased its production to record levels in plentiful condition. In total, Non-Opec countries are expected to increase their daily production by 830,000 barrels.
On the other side:
- Russia does not want to allow an oil rally that would cause seriously damaged shale oil producers to return to the game.
- Green energy
- Another issue is the slowdown in oil demand in China, even before the holiday season. A 50% decrease in air traffic in Beijing and Shanghai compared to previous years gives warnings about the forward demand.
Long-term: As long as the price remains below 75 USD, I will follow the 50 and 34 USD levels, respectively.
For a new big bullish cycle, we need to wait for weekly closings above 75 $/Barrel
The rally, which started at $ 36 levels, decelerated in 2011 at $ 110. Prices, which remained stable between $ 110 and $ 75 for a while, saw a rapid sell-off in 2014.
We were listening to the same symphony as the prices tested $ 110 in the summer of 2014. The bulls convinced the market that prices would break $ 110 this time and test $ 150.
While the bulls were trying to push the price up, global macroeconomic indicators were drawing a different scenario.
Baltic Dry Index was at 5 years lows.
Organizations such as the IMF, WTO, and IEA were revising their global growth and global oil demand expectations downward.
Eventually the expected and inevitable happened, and prices entered a rapid collapse, breaking $ 90, then $ 75.
With the closing below $ 75, the long-term bear market has also started. And oil prices are still trading in the bear market.
What are the macroeconomic reasons that will cause the prices to enter the bull market in these times when $ 100 levels are being talked about again?
Any rally without strong fundamentals creates nothing but a bubble.
Positive for oil prices:
- SA insistence on cutting the supply. ( Priced in )
- The possibility of re-opening of economies by loosening quarantine measures due to vaccine ( Priced in )
- Weak dollar and future inflation expectations
Demand/Supply :
The International Energy Agency stated in its latest report that it expects daily oil demand to increase by 5.4 million barrels to 96.4 million, and 60% of the demand lost during 2020 will return. On the supply side, US production is expected to increase by 11.2 million barrels per day for 2021 (940,000 barrels decrease per day in 2020). Canada has increased its production to record levels in plentiful condition. In total, Non-Opec countries are expected to increase their daily production by 830,000 barrels.
On the other side:
- Russia does not want to allow an oil rally that would cause seriously damaged shale oil producers to return to the game.
- Green energy
- Another issue is the slowdown in oil demand in China, even before the holiday season. A 50% decrease in air traffic in Beijing and Shanghai compared to previous years gives warnings about the forward demand.
Long-term: As long as the price remains below 75 USD, I will follow the 50 and 34 USD levels, respectively.
For a new big bullish cycle, we need to wait for weekly closings above 75 $/Barrel
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