12.08.202014:25 Forex-elemzések és áttekintések: American oil-producers out of game

A few days ago, there were talks that the difficult epidemiological situation in the United States would slow down global demand, while the production increase by OPEC+ and American producers would limit the potential for rally in Brent and WTI. Almost the only savior of crude oil was the greenback. Depreciation of the US dollar allowed the North Sea Brent crude to hold its positions within the $41-45 per barrel. At the beginning of the second decade of August, everything turned upside down.

Strong US employment statistics for July made investors doubt the need to sell the US dollar. If the rise of the number of COVID-19 cases to historic highs does not lead to a deterioration in the labor market, then the second wave of the pandemic is not as terrible as it is portrayed. Moreover, the virus is gradually losing its grip, while the Russian vaccine returns confidence to investors. Oil can clearly rely on American demand. According to API, oil inventories decreased by 4 million barrels in the week to August 7 against forecasts of -2.9 million barrels.

The good news for Brent and WTI bulls was the reduction of US oil production forecasts. Thus, based on estimates of the Energy Information Administration, the extraction of oil dropped to 11.26 million barrels per day from 11.63 million barrels per day on average during 2020.

US oil prroduction

The beginning of the year turned out to be extremely difficult for American oil-producing companies: a lockdown, a drop in domestic and global demand, and the closure of production. As a result, their net income has fallen drastically. Currently, American oil-producing companies are facing a tough choice: either to increase production and help lower prices, or to pay off debts. The fact that the number of oil rigs has dropped to a 15-year low indicates that the second option is preferred.

Financial results of American oil companies

Even if American oil-producers are out of the game, the US economy is in a good state against the background of a difficult epidemiological situation, and the European and Chinese economies are even in a better state, then a gradual increase in global demand must lead to higher prices. Unless, of course, the US dollar does not interfere in this process.

Thus, the market environment changed very quickly. The rise in global risk appetite in the light of news about the vaccine and the decline in daily coronavirus cases in the United States is obvious. Another thing is that the US currency may prevent Brent and WTI from growing. Let's take gold for example: excess of net longs turned into a collapse in the quotes. A similar situation can be observed in relation to the US dollar. Is the market going to make the same mistake twice in a short period of time?

Technically, the 78.6% target for the Gartley pattern has not been canceled. It is located near the mark of $51 per barrel. In my opinion, the nosedives of Brent below $45 with a subsequent return above this level can create favourable conditions for the formation of long positions.

Oil, daily chart