28.04.202013:41 Forex Analysis & Reviews: Oil will check storage facilities

When speculation is added to the huge surplus in the black gold market, shocks become inevitable. The Texas grade fell immediately by 20% in trading on April 27 after S&P GSCI, one of the largest specialized exchange-traded funds in the world working with oil, announced its intention to get rid of June futures contracts for WTI and buy contracts with a more distant execution date instead. However, black gold quickly regained its position, because when everyone sells, there is a great opportunity to buy.

The fall of the Texas variety below zero is an event that will be remembered for many years. It makes investors pay more attention to expiration dates. Few people want to be in the deep red just because all the storage is full. As a result, portfolios are being diversified in favor of contracts with a more distant delivery date. Which, by the way, cost more than the June ones. Super-contango on the oil market proves that Brent and WTI cannot remain at current levels indefinitely. According to research by Goldman Sachs, over the next three weeks, the global market will test the limits of storage capacity. After there is no place to fill the oil, producers will be forced to curtail production at least 20% of the value of global production. The bank estimates a reduction in global demand of 18 million b/d, while a gradual decrease in the surplus will lead to an increase in prices.

The most acute problem of lack of storage is in the United States. According to JP Morgan, in order for the tanks in Cushing not to overflow by 90% or higher, American companies need to produce only 1 million b/d in May and 500 thousand b/d in June. But a few weeks ago, we were talking about the figure of 13 million b/d. The main blow will be taken by Texas, where, according to the Federal Reserve of Dallas, manufacturing activity fell to the level of -55.3, the lowest since the start of accounting in 2004. 59% of company executives said that they are working part-time, 33% said that they are closed.

Dynamics of manufacturing activity in Texas

In my opinion, the nightmare days for oil will soon be over. Along with a reduction in production in the US and other countries, Brent and WTI will be supported by an exit from the quarantine. This will lead to an increase in global demand for black gold, primarily from China, which will later be joined by other states. This circumstance allows us to look closely at the idea of forming long-term long positions for the North sea variety on the breakout of important resistance levels near $25.75 and $28 per barrel.

Technically, Brent is in the hands of "bears", but the growth of quotes above dynamic resistance in the form of moving averages can seriously change the balance of forces. In this scenario, the probability of working out the Anti-Turtles reversal pattern with the subsequent activation of the "Shark" harmonious trading model will increase.

Brent, the daily chart