The output rise in the oil market as a reason for sales

Oil continues to experience difficulties, and its prices are in the lowest values in the last couple of months. On the factors that pushed prices up in September, oil no longer responds. We are talking about US sanctions against Iran, as well as the continuing economic depression in Venezuela and a significant decline in oil production in the country.

Instead of it, investors' concerns about the increased oil supply from key market participants: Russia, the United States, and Saudi Arabia came to the fore. All these countries are producing the maximum amount of oil so far. Moreover, as we wrote earlier, Saudi Arabia has recently pledged about a possibility to compensate losses of oil market due to the decline in exports from Iran. Recall, all this takes place amid investor and analytic concerns about the growth rate of demand in the oil market: the IMF predicts a slowdown in the global economy, and China’s GDP growth rate (the minimum over the last 10 years) shows that these fears are completely material grounds. Do not forget also that current high oil prices are cooling interest of traders in oil purchases. And it also negatively affects the amount of demand in the market.

Note also that the problems of both Iran and Venezuela are temporary. That is, in the foreseeable future, we can expect a recovery in oil production in countries, which means that an additional 2-3 million barrels per day may appear on the oil market. This can radically change the balance of supply and demand in the market.

Statistics about oil reserves in the USA nevertheless indicates that there is a surplus in the oil market. According to the API, oil reserves in the USA have been growing for 6 weeks in a row (!).

So, amid when oil production is growing, while the growth rate of demand is lagging behind, it is reasonable to expect a surplus on the oil market, which will inevitably lead to a fall in prices. And there is a space for oil to fall. Let us remind that a year or two ago, oil prices were fluctuating around $40- $50 per barrel. So our medium-term oil trading recommendation is to sell.