Banks and oil traders have drawn such a bright future for black gold that selling on such a market is like condemning oneself to failure in advance. There is a growing belief among investors that thanks to the current super-cycle, Brent quotes will be able to return above $100 per barrel. The most optimistic bulls expect this to happen in 2021.
The recovery of the global economy from a recession is often accompanied by growth in both demand and supply. But demand is likely to expand faster, as manufacturing companies cut investment amid the pandemic. Also, the decline in oil production due to the unprecedented freezing in the US will lead to a faster depletion of global reserves than previously thought. According to estimates by Trafigura Group, due to frosts in the US, the oil supply will be missing about 40 million barrels over the next few weeks.
In the face of widespread vaccination and the associated opening up of the world's major economies, the market must consider the question: Will we have enough oil now as we approach the peak demand season? Indeed, the summer promises to be hot for black gold, so the "bullish" conjuncture or backwardation looks quite logical. The price of short-term futures contracts is higher than long-term ones, as traders are seriously counting on a serious increase in global demand.
Oil market conditions
The strengthening of the bullish spread contributes to the rapid unwinding of the stocks accumulated during the pandemic. Vortexa estimates that the volume of oil stored at sea has dropped to an 11-month low.
Backwardation attracts speculators who drive up prices even more. In addition, how not to buy if Goldman Sachs raises the forecast for Brent from $60 to $70 per barrel in the second quarter and from $65 to $75 per barrel in the third quarter. Morgan Stanley notes that the number of new cases of COVID-19 is rapidly declining, and refineries in non-OECD countries are operating at the same capacity as before the pandemic. These circumstances allow the company to expect that prices for the North Sea grade will rise to $70 per barrel in the third quarter. Socar Trading believes that we will see Brent at $80 per barrel this year.
The optimism is certainly justified, but no trend is complete without correction. The reason for the rollback may be the OPEC+ meeting, at which the issue of increasing production will become topical. There is no longer a need for Saudi Arabia to cut production unilaterally, and Russia has previously objected to the prolongation of commitments to cut production. This circumstance can cool the hotheads of the bulls for Brent and WTI for some time, but it is unlikely to break the upward trend.
Technically, the Wolfe Wave pattern was formed on the monthly chart of the North Sea variety, which allows us to determine the guidelines for the upward movement. They are located near $90 and $94 per barrel. I recommend using pullbacks to supports at $64.9, $63, and $61.15 to form longs.
Brent, monthly chart