Oil moves in tandem with US stocks and the yield of US Treasury bonds, which indicates growing investor fears about the impact of trade wars on global demand for black gold. Speculators for the fifth week in a row reduce net longs for Brent and WTI, which contributes to almost 20% of the collapse of quotations from the levels available at the end of April. However, the physical asset market shows that it is too early for bears to rest on their laurels. The premiums on fixed-term contracts with the delivery of the North Sea variety in a month are $1.3, in 6 months – $4 per barrel. Derivatives expect prices to rise in the future, which may happen in the case of de-escalation of the conflict between the US and China after the meeting of Donald Trump and Xi Jinping at the G20 summit in Japan.
Morgan Stanley believes that if Washington imposes duties on all imports of China, then in 9 months, the States will plunge into recession. JP Morgan warns that the chances of a US economic downturn on the time horizon of 12 months have increased over the past 30 days from 25% to 40%. The inversion of the yield curve signals a recession, and representatives of the Fed begin to talk about lowering rates. In particular, the head of the FRB of St. Louis James Bullard believes that it is time to weaken monetary policy. Against the background of growing fears for the fate of the US GDP, the fall of the S&P 500 and the yield of Treasury bonds look logical. The decline in business activity in the US manufacturing sector to the lowest level in the last 2 years adds fuel to the fire.
Trade wars bring pain to all participants. China, the US, and the eurozone are the largest consumers of oil, so negative macroeconomic statistics lead to sales of Brent and WTI. Especially since on the supply side, the bulls are losing support. Saudi Arabia is trying to calm the markets by talking about the existence of a consensus in OPEC on the prolongation of the agreement on production cuts of 1.2 million b/s until the end of 2019, while increasing production itself (ostensibly to close the losses of Iran, where production fell to a minimum level since 1990) and sends letters about the postponement of the Vienna OPEC Summit from late June to July. Iran, Algeria, and Kazakhstan are against, which signals a split in the cartel.
Changes in oil production within OPEC
At the same time, the increase in the number of drilling rigs from Baker Hughes in the week to May 31 indicates that the US production of black gold is all right, which increases the desire of speculators to get rid of long positions on Brent and WTI. The market completely forgot about the problems in the Persian Gulf and switched to global demand.
Technically, the inability of the "bulls" in the North Sea variety to keep quotes above $68.45 per barrel, as expected, was the first sign of their weakness. The fall of Brent below the support by $58.7 will increase the risks of continuing the Northern campaign of oil as part of the transformation of the shark pattern in 5-0. The consequences can be enormous, up to a fall in prices below $ 45 per barrel.