Oil took a step back


Buy on rumors, then sell on facts. Brent and WTI actively grew on expectations of extending the April OPEC+ agreement to reduce production by 9.7 million b/d from the end of June to a later period. In the end, everything happened. However, the terms of the new agreement somewhat confused investors, which became the basis for fixing profits on long positions in oil futures. As a result, the North Sea variety collapsed below $ 40 per barrel, and the “bears” are seriously counting on the development of correction.

The OPEC+ summit brought some bad news to black gold fans. Markets seriously expected that the cartel and other producing countries would extend the terms of cuts by 9.7 million b/d for at least three months. Citing the need to restore its own oil industry, Mexico refused to reduce production by 100 thousand b/d. In addition, Saudi Arabia said that it exceeded its obligations by 1.2 million b/d in May. However, due to the recovery in global demand, it is not going to continue in the same spirit. Riyadh and Moscow expect that those countries that did not contribute to the stabilization of black gold prices will begin to exceed their obligations in June-July, which looks extremely doubtful.

Dynamics of OPEC+ production decline

Freed from its obligations due to the civil war, Libya plans to resume production at the Sharara field, which will add about 300 thousand b/d to the global supply. According to forecasts of experts from the Financial Times, shale oil production in the United States by the end of August may grow by 20% or 2 million b/d, that is, return to the levels that took place before the pandemic.

The reluctance of Saudi Arabia to exceed the plan, the modest timing of the extension of the April OPEC+ agreement, the growth of supply from Libya, and the United States raise serious doubts about the ability of Brent and WTI to continue the rally. According to Goldman Sachs, investors should wait for a full correction of the North Sea grade to $ 35 per barrel, which will not be long. American companies have significantly reduced business investment, which does not allow us to expect rapid growth in shale production. Brent forecast for the end of 2020 was raised by the company to $ 40.4 per barrel.

I will allow myself to agree with Goldman Sachs, adding that global demand against the background of a faster global economic recovery than previously anticipated will grow faster than planned. As proof of this hypothesis, unexpectedly strong statistics on the US labor market appear. In May, unemployment fell from 14.7% to 13.3%, and employment grew at the fastest pace since the end of World War II. This increases the chances of a V-shaped recovery in the US economy and is good news for the “bulls” for Brent and WTI.

Technically, the strength of the upward trend is not in doubt. Pullbacks with a subsequent rebound from dynamic support in the form of moving averages and pivot levels near $ 37.65 and $ 36.65 should be used for purchases.

Brent, the daily chart


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