01.08.202312:42 Forex Analysis & Reviews: Oil conquers peaks

Record-high demand and the supply cuts by Saudi Arabia and Russia have returned the oil market to a deficit. Investors expect Riyadh to extend its commitment to reduce production by 1 million barrels per day for another month, including September. Goldman Sachs forecasts that global oil consumption surged to a record 102.8 million bpd in July. Lower figures in China were offset by strong data from the United States and India. As a result, the bank's previous estimate was raised by 550,000 bpd.

In July, Saudi Arabia's oil production decreased by 860,000 bpd, and OPEC's production fell by 840,000 bpd compared to the previous month. As a result, the cartel reduced production to 27.34 million bpd, the lowest level since September 2021. It's no wonder that July turned out to be the best month for major oil benchmarks since the beginning of 2022. WTI rose by 15%, and Brent rose by 13.5%.

Monthly oil dynamics

Looking at the rally of the North Sea grade to the area of 3.5-month highs, producers will inevitably feel confident. Riyadh is raising prices for its Arab Light crude oil for Asian buyers for the third consecutive time. As a result, its premium to Oman/Dubai benchmarks reached $3.65 per barrel, the highest premium this year. It seems that the bet on production cuts causing an oil price increase has proven itself.

Supporting the bulls on Brent, there is information about a decrease in U.S. oil production to 12.66 million bpd, the lowest level since February. At the same time, Jerome Powell's statement that the Federal Reserve does not foresee a recession in the U.S. economy in 2023 allows North Sea oil fans to breathe a sigh of relief. With such a scenario, there should not be a sharp decline in global oil demand.

Capital flows dynamics in oil ETFs

However, markets do not always believe in the Federal Reserve. Reuters' recent survey shows that the average price of Brent in the current year will be $81.95 per barrel, below the June consensus forecast of $83.3. The main reason for the decline is attributed to the negative impact of the most aggressive tightening of monetary policy by the Federal Reserve in decades on the U.S. economy. In the second quarter, the 525 bps rate hike since the beginning of the cycle will be felt more strongly than in the first quarter. The reaction of investors to the surge in North Sea oil is quite intriguing—they withdrew $200 million from the largest ETF in just one day. Did they find something more interesting?

Technically, on the daily chart, oil continues to do what it should, developing an upward trend after a clear implementation of the Expanding Wedge reversal pattern. We only need to use a passive "buy and hold" strategy and enjoy the growing profits. The target of $86 per barrel for previously established long positions has almost been reached. It is time to raise it to $89 and $92. The recommendation is to buy.