07.09.202117:30 Forex Analysis & Reviews: Oil: the calm before the storm

There has been so much conflicting information on the financial markets lately that it is not surprising how oil rushes from side to side. Jerome Powell said in Jackson Hole that it makes no sense to be afraid of the delta strain, but weak US employment statistics for August signals that fears do exist. Sad news from business activity in China made investors believe in a slowdown in GDP, but how can we talk about it when foreign trade is marked by record indicators? The US dollar should have weakened due to disappointing labor market data, but this did not happen. How can an ordinary trader survive in the ocean of conflicting information?

Brent dynamics

We have to read between the lines and catch the moods of major players. The fact that OPEC+ at one of the shortest meetings in history on September 1 confirmed its intention to increase production by 400,000 b/d per month until the end of 2022, it seems, should have served the "bears" for Brent and WTI. In fact, the Alliance's desire to adhere to the previously intended plan can be interpreted as its confidence in the bright future of the black gold market. Even against the background of clear signs of slowing global demand, the organization did not take a step back.

However, this does not mean that all OPEC+ members are confident that everything will be fine. The increase in discounts on Saudi Arabia's own oil was perceived as its intention to retain market share and led to a drop in black gold futures prices. Riyadh may see weak demand soon, which requires a lower price to remain competitive.

No less controversial information comes from Asia. The drop in China's Caixin manufacturing PMI below the critical mark of 50, which indicates a reduction, became an alarming signal for the bulls on Brent and WTI. It might seem that the economy of the country, the largest consumer of black gold, is not all right. Nevertheless, Chinese oil imports in August rose by 8% MoM to 44.53 million tons, which is equivalent to 10.49 million b/d. For comparison, in July it was 9.71 million b/d, and at 11.18 million b/d in August 2020. This circumstance, coupled with the closure of 80% of production in the Gulf of Mexico due to Hurricane Ida, provides serious support to fans of both varieties of black gold.

It is not surprising that speculators were buying oil and petroleum products at the second-fastest pace since the beginning of the year in the week of August 31. Financial managers were particularly active in relation to Brent, increasing their net long positions by 28 million barrels in equivalent. Interestingly, they cut their net longs by 1 million barrels in WTI.

Dynamics of speculative positions in oil and petroleum products

Technically, the implementation of the Wolfe Wave pattern continues on Brent's daily chart. The first assaults of the diagonal resistance 2-4 did not bring success to the bulls, but they are not going to give up trying. A break of the pivot point at $73.45 will be a signal for the formation of long positions with targets at $77.2 and $81 per barrel.

Brent, Daily chart