As the number of COVID-19 cases in the US, France, and Russia reaches record highs, and Saudi Arabia's energy minister Prince Abdulaziz bin Salman says the worst for the oil market is over, it feels like sarcasm. The pandemic and the associated lockdown and recession have pushed Texas black gold prices below zero for the first time in history, and if the global economy faces repeated restrictions and a double recession, Brent and WTI may rapidly decline, hand in hand. In such conditions, we can only be glad that we opened the shorts because of the inability of the North Sea variety to overcome the resistance by $ 43.5 per barrel.
When countries impose restrictions due to continuous covid outbreaks, demand for oil and petroleum products falls, and the contango in the black gold market expands to the highest levels since the beginning of September, indicating that investors are counting on an oversupply in the near future. This information does not bring anything good for Brent and WTI. Standard Chartered Bank estimates that the global economy will consume 9.6 million b / d less in 2020 than in 2019, which is equivalent to approximately 10% of global oil demand. According to the Commonwealth Bank of Australia, which forecasts the average price of Brent at $ 41, and WTI at $ 38 per barrel in the fourth quarter, the pandemic will indeed make it very difficult for demand to rise.
And then there's Libya, which picked a bad time to lift the 9-month block on increasing production. The growth of its domestic production brings confusion to the plans of OPEC +, which is discussing the question of whether to reduce the volume of commitments to reduce production by 2 million b / d from January 1.
Dynamics of Libyan oil production:
In this regard, the words of Saudi's energy minister are doubly sarcastic: not only will a double recession hurt oil demand and lower prices, but OPEC + passivity (the worst is over!) Can contribute to this.
Black gold is particularly affected by the reduction of drilling rigs in the US, the closure of 16% of production on the Gulf coast due to hurricane Zeta, and the dollar weakening due to the growing probability of Joe Biden winning the presidential election. Despite the fact that oil is quoted in the US currency, a fall in the USD index does not always lead to an increase in Brent and WTI quotes.
Thus, due to COVID-19, black gold risks stepping on the same rake as in the spring, when there were concerns about a serious reduction in demand under the influence of the pandemic and lockdowns. The situation is compounded by the US presidential election and concerns that it may be contested due to mail-in voting. This circumstance contributes to the growth of uncertainty and carries a negative impact on the entire commodity market.
Technically, a drop in Brent prices below the October low near $ 38.9 per barrel activates the "Expanding Wedge" pattern and will contribute to the continuation of the peak of the North Sea variety. We keep the shorts formed from the $ 43.5 level and increase them if the above support is successfully stormed.
Brent daily chart:
