When you are up to your ears in longs and do not know what to expect from OPEC+, it is best to take a partial profit out of harm's way. Investors can only guess how many additional barrels will be added to the market by an organization that controls about 40% of the world's supply. The base case assumes an increase in production by 1.5 million b/d from April, including by 1 million b/d from Saudi Arabia. But who knows exactly how the March summit will end?

On the eve of an important meeting of the alliance, speculators preferred to play it safe and for the first time in the last 16 weeks reduced net longs on key oil grades by about 9 million barrels in equivalent. Since November, after successful trials of COVID-19 vaccines became known, hedge funds have steadily increased their long positions, increasing them by 548 million barrels during this period. As a result, Brent has grown by 23% since the beginning of 2021, and WTI by 25%.

Daily dynamics of the main grades of oil

There is a solid foundation underneath the oil's upward trend - world stocks are declining at a record pace amid a faster recovery in global demand versus supply. The freezing in the US and the fact that even ardent supporters of increasing production cannot find the strength to increase it, fuel interest in black gold. According to Reuters calculations, oil production in Russia in February fell from 10.16 million b/d to 10.1 million b/d, despite plans to increase it.

The "bulls" on Brent and WTI are somewhat worried by the rate of decline in business activity in the manufacturing sector in China to a 9-month low in February and the strengthening of the US dollar. Unlike other central banks that are trying to fight rising bond yields, the Fed continues to argue that nothing bad is happening. The widening of the rate differentials of the US debt market and its analogues increases the attractiveness of US assets, increases the demand for the dollar, and puts spokes in the wheels of oil.

In my opinion, these factors are temporary. China's purchasing managers' indices are experiencing some difficulties due to the Lunar New Year. At the same time, domestic demand in the US is growing faster than production. This is a good sign for Chinese exports and GDP. Let Bloomberg's forecast that the US economy will accelerate to 7.6% if Congress approves $1.9 trillion in fiscal stimulus, does not scare the opponents of the dollar. Thanks to the US, Europe and other continents will be able to rise from their knees which will return the USD index to a downward trend.

Thus, the correction of the main grades of oil creates favorable conditions for purchases at relatively low prices. After the OPEC+ summit, the bulls are likely to return to the market and do their best to restore the upward trend.

Technically, on Brent's weekly chart, buyers' inability to storm the pivot level of $64.85 per barrel was the first sign of weakness. The rollback looks logical, but the presence of the Wolfe Wave pattern indicates the stability of the upward trend. The recommendation is to buy oil on pullbacks to $62.15, $61, and $59.5.

Brent, weekly chart