The fate of the black gold market does not depend on Saudi Arabia, which, under the influence of rising global demand, raises its oil prices; and not from Russia, whose Urals grade is trading at a premium of $ 2.4 per barrel to Brent, although in April it was a discount of $ 4.5; but from the USA. If earlier, in an attempt to stabilize the market by reducing production, Moscow and Riyadh lit a green light in front of American producers, now even a recovery in global demand does not save shale companies from the United States. They got too many loans during the boom, now it is time to give money, which automatically reduces investment and casts doubt on the output of production to pre-crisis levels.
Dynamics of the Urals-Brent differential
Back in February, the production of black gold in the United States was close to historical highs of 13 million b/d, however, it had fallen to 10.5 million b/d by July. And it is not a fact that as prices rise, the indicator will recover. $ 40 per barrel for WTI is not enough for American shale companies to pay off their debts and increase their spending on exploration and production. At the same time, the fact that demand is starting to limp does not add to their optimism. Yes, oil reserves in the week to June 26 decreased by 7.2 million and it will fall by another 3.4 million barrels (according to Bloomberg experts) at the end of the five days to July 3, however, the fact that gasoline consumption in the United States is declining makes us doubt whether the positive dynamics of the indicator will continue. Traditionally, the opening of the automotive season is considered a "bullish" factor for Brent and WTI, but in 2020, the pandemic made its adjustments.
The opening of the American economy has led to an increase in the number of COVID-19 infections to record highs in 16 states, including those as densely populated and economically important as California and Texas. Rumors of a repeated lockdown harm global oil demand and lend a helping hand to safe-haven assets, primarily the US dollar. Well, as you know, everything that is good for the "American" is bad for oil.
Dynamics of the USD and Brent index
Investors are afraid of a W-shaped recovery in the US GDP, however, you need to understand that Americans are not the only consumers of black gold. There are also China and Europe, where things are going much better. Also, shale production in the United States is not going through the best period in its history, it is almost excluded from the process of market redistribution, which, together with OPEC+ activity, creates a solid foundation for the "bullish" trend for Brent and WTI. In such conditions, buying strategies on pullbacks are still relevant, as the formation of long positions on breakouts of resistance at $ 44.65 and $ 46.05 per barrel.
Technically, the North Sea variety continues to move within the ascending price channel in the direction of the target by 88.6% according to the "shark" pattern. It is located near the $ 51 mark. A correction is possible, however, its potential looks limited by diagonal support in the form of a combination of averages, as well as pivot levels of $ 37.8 and $ 36.65. A fall to them will present a great opportunity for medium and long-term purchases of Brent.
Brent, the daily chart
