After several weeks of calm, the oil market comes to life. Advances in vaccination are fueling global demand, and hurricanes in the Gulf of Mexico are limiting the size of supply. The reserves of black gold accumulated in 2020 due to the pandemic are declining, and in such conditions, prices have only one thing left - to grow. Thus, it is possible to realize the forecasts voiced in previous materials to recover the upward trend for Brent.
According to research by the analytical company Kayrros, as of September 5, about 2.97 billion barrels of oil were stored onshore worldwide. It is the lowest indicator since January 2020. Stocks in the United States are located at the lowest level in 2 years, in China – since September 2020. Their reduction is due to the slowdown in global production in August-September after a continuous increase in May-July and a gradual increase in interest in black gold from consumers.
Dynamics of global oil production
According to Bloomberg, about 40% of oil and gas production in the Gulf of Mexico remained inaccessible two weeks after storm Ida hit the Louisiana coast. At the same time, the approach of a new tropical hurricane Nicholas forces the "bears" for Brent and WTI to flee the battlefield in a panic.
The International Energy Agency said that the production losses due to Ida negate the increase in OPEC+ production, which reduced global oil reserves by 540 thousand b/d in August. The indicator will remain at the same level in September, which should be regarded as a bullish factor for the main varieties of black gold. After three months of declining global oil demand due to restrictions imposed in Asia, the IEA expects that the indicator will resume its growth amid the mass deployment of vaccines and the retreat of fears about the Delta. According to the authoritative organization, demand will grow by 5.2 million b/d in 2021 and by 3.2 million b/d in 2022.
We are talking about lower forecasts compared to OPEC estimates. The cartel expects an increase of 5.96 million b/d this year and 4.15 million b/d next year. The increase in the OPEC forecast for 2022 to 100.8 million b/d suggests that global demand will exceed its pre-pandemic level next year. Earlier, the organization of petroleum-producing countries expected this to happen in the second half of 2022, but now it is more optimistic. If we add a reduction in the production estimate for 2021 by 200 thousand b/d due to Hurricane Ida, the bulls for Brent and WTI can start celebrating the victory.
Indeed, the slowdown in production, the acceleration of demand, and the reduction of reserves create a solid foundation under the upward trend in oil. Buyers are unlikely to be frightened by the information about the increase in discounts on Iraq's varieties of black gold and China's statement about the sale of oil from strategic reserves.
Technically, the exit of Brent quotes from the short-term consolidation range of $ 70.65 - $ 73.45 per barrel and consolidation above the fair value identified using the market profile allowed us to form long positions with targets at $ 77.2 and $ 81. The recommendation is to keep and increase longs on pullbacks.
Brent, the daily chart