19.05.202012:57 Forex Analysis & Reviews: Oil bounce back

To be successful in trading, you need to not only correctly predict the direction of price movement, but also do it in time. Now only the lazy are not sure about the growth of Brent and WTI: Donald Trump in his Twitter orders oil to go back to the levels at which black gold was quoted before the pandemic, and hedge funds have increased net longs for the Texas grade to the highest levels since September 2018. However, at the beginning of the third decade of April, my recommended purchases of Brent on breakouts of resistance at $ 26.25 and $ 28.35 per barrel, in the opinion of most, did not look like the best idea. Well, if the crowd were always right, the Sun would still be orbiting the Earth.

When financial markets respond to a single factor - a pandemic - it is easy to assume that an improved epidemiological environment will lead to an increase in risky assets and commodities. Yes, the coronavirus has nipped a whopping 30-35 million b/d from global oil demand, but good news about laboratory tests of the COVID-19 vaccine and the non-infestation of patients cured of the virus allows us to count on the recovery of the world economy and interest in black gold. According to a Bloomberg insider, demand for oil in China has already reached levels that occurred before the use of social exclusion measures in the country. We are talking about 13 million b/d. The peak of 13.7 million b/d was recorded in December 2019.

Dynamics of Chinese oil demand

The same processes are beginning to take place in the United States. According to the US Energy Information Administration, the volume of oil product deliveries to the US market, one of the indicators of demand for black gold, rose to 16.8 million b/d in the first week of May, which is 9% more than on the previous seven-day period. Yes, it is still lower by 4 million b/d compared to a year earlier, but the trouble has started!

The growth of interest in oil in the two countries - the largest consumers - is not the only reason for the joy of the "bulls" for Brent and WTI. According to research by the International Energy Agency, the supply of black gold in May will fall to a 9-year low of 88 million b/d. We are talking about a 12 million b/d reduction in production, including due to its faster decline than previously expected in countries such as the United States and Canada. OPEC is using an aggressive strategy to meet production reduction obligations, Russia promises strict compliance with the terms of the agreement, and Kpler estimates that exports from the cartel countries will decrease by 6.4 million b/d in May. At the same time, rumors that Saudi Arabia is allegedly forced to sell oil at a discount due to a lack of buyers have not been confirmed. On the contrary, Bloomberg claims that Riyadh refused to increase the supply of black gold to three contractors.

When demand increases on the one hand and supply decreases on the other, the surplus will narrow. The improved oil market conditions allow me to stick to the Brent buying strategy with 3 and 6-month targets of $ 45.5 and $ 50.5 per barrel. The first target is an important pivot level, and the second is an 88.6% target based on the "Shark" pattern.

Brent, the daily chart