Neither the strengthening of the US dollar nor the decrease in the forecast of global demand from the International Energy Agency (IEA) did not frighten the bulls on Brent and WTI. After a slight retreat, they resumed their attacks, supported by expectations of fiscal stimulus from Joe Biden and strong macro data from China. Unlike many countries in the world, China's GDP expanded by 2.3% in 2020, while oil refining in Asia's largest economy rose 3% in December to a new all-time high. China is the largest consumer of black gold and the good news from China is creating a tailwind for Brent and WTI.
Oil kicks off 2021 in high spirits. And it's not just about the growth of futures quotes for the main varieties. Investors' demand for this asset of the commodity market is also growing, which is reflected in the growth of open interest in contracts for the Texas variety to the highest levels since May.
Dynamics of open interest in oil futures
The IEA estimates that at current price levels, most of the US shale production is profitable. As a result, the demand for hedging operations is growing, allowing to minimize the risks of falling prices for black gold. The army of oil buyers is growing along with the sellers. By the end of the week by January 12, 163 asset management companies held long positions in Brent and WTI, which is significantly higher than in March. Then it was about 94 players.
Thus, the oil market is gradually reviving and responding rather calmly to the reduction in global demand forecasts by 600,000 b/d in the first quarter and by 300,000 b/d in 2021 by the International Energy Agency. The indicator this year will grow by 5.5 million b/d to 96.6 million b/d after falling by 8.8 million b/d in 2020. The reasons for the deterioration of previous estimates are associated with the spread of COVID-19 and lockdowns. The IEA expects global shipments to rise by 1.2 million b/d in 2021 after a record 6.6 million b/d decline last year.
Such dynamics of supply and demand allows the IEA to assume that with 100% fulfillment of OPEC + obligations, global oil reserves will decrease by 100 million barrels in the first quarter, which is equivalent to 1.1 million barrels per day, and will continue to do so throughout the year. This process will be especially fast in July-December. Thus, the IEA's forecast, even taking into account the deterioration in estimates of the growth of global demand, looks bullish, which, along with the return of EUR/USD quotes above the base of the 21st figure (that is, the weakening of the US dollar) allows buyers of Brent and WTI to attack.
Technically, the potential of the upward movement for the North Sea variety is far from being exhausted. The 261.8% target for the AB = CD pattern, which corresponds to $64 per barrel, still looms on the horizon and inspires bulls to feats. The decision to partially fix the profit on the previously formed longs, and then increase them on pullbacks, announced in the previous article, turned out to be correct. The current recommendation is to hold and increase long positions in case of a successful storming of the resistances at $55.8 and $57.45 per barrel.
Brent, daily chart
