While oil has been marked as the best start in the first four months of the year since 1999, it is argued on the market what this may all end with. Since the 1970s, every rapid rally of black gold has turned into problems for the global economy. Consumer spending on gasoline and diesel fuel grew, as well as the cost of production increased and accelerated inflation, caused the central banks to tighten monetary policy. Donald Trump, whose appeal to OPEC to cut production, led to a 3% collapse of Brent and WTI at auction on April 26, is perfectly aware of such a scenario. Most likely, it was about closing speculative positions since the market as a whole remains under the control of the bulls.
Changes in oil prices in January-April
The appeal of the US President to the cartel came at a time when the participants in the production-reduction agreement evaluated the impact of Washington’s sanctions against Tehran and thought about whether black gold had risen too high because of them? According to BofA Merrill Lynch, oil production in Iran will decline from 3.6 million bpd in the third quarter of 2018 to 1.9 million bpd in the second half of 2019. Nevertheless, the bank believes that there will not be much growth in the market surplus as reserve capacities of other countries will cover it. Judging by the behavior of financial markets, investors do not particularly panic about the negative impact of the Brent and WTI rally on the global economy. First, the rise in prices was primarily due to supply disruptions. If so, then global demand will cope with the current value of black gold as the eurozone and China recover. Secondly, the market has changed. Costs have dropped and mining in the United States is growing at a record pace. In this regard, it can be assumed that future shocks will be less painful than before.
Oil production in the largest producing countries
It should be noted that Riyadh has good reason to ignore Donald Trump’s calls for OPEC to cut production. According to IMF research, to balance the budget of Saudi Arabia, oil is required at $ 85 a barrel. Donald Trump had no special effect. On the contrary, Saudi Arabia stated that the cartel is likely to prolong the agreement on reducing production outside of June. Most likely, until the end of the year. Coupled with the US sanctions against Iran and the increased risk of a military coup in Venezuela, as well as problems with pipelines in Russia and an increase in global demand, Brent and WTI are fully capable of continuing the northern campaign. According to the median estimate of the 31st Reuters expert, the average cost of a North Sea variety in 2019 will be $68.57, which is 2% higher than predicted in March, and a Texan with $60.23 per barrel.
Technically, if Brent bulls fail to return futures quotes above $72.75 (61.8% of the Shark pattern CD wave) in the near future, it will be the first indication of the weakness and increase the risk of further decline of oil in the framework of the transformation of the model Shark in 5-0.
Brent daily chart