As soon as net long positions in oil grew for the first time in several weeks, rumors immediately appeared on the market that black gold had formed the bottom. According to the results of the five days, by October 22, speculative net-longs for WTI increased by the amount equivalent to 22 million barrels, although before that they had decreased by 206 million barrels for three consecutive weeks. Investors noticed that the ratio of long-term to short-term short positions fell to 2.6 to 1, which is the lowest level since January. In April, the indicator was 8.7 to 1.
The total superiority of the "bears" against the background of de-escalation of the US-China and Britain-EU conflicts looks quite strange. OPEC, Russia and other producing countries are on the verge of extending the agreement on production cuts, the growth rate of shale production in the United States is slowing, and the reduction of trade and political risks should have a positive impact on global oil demand. Donald Trump is ready almost today to sign an agreement with Beijing, which is good news for China's tormented economy. Let me remind you that this country is the largest consumer of black gold in the world.
Trade duties are higher today than 3 months ago. The issue of Brexit is not finally resolved, but investors are optimistic about the future. The "bulls" on Brent and WTI may be preparing a bridgehead for the attack, but for now, they are held back by pitfalls. In particular, Sanford C. Bernstein estimates that to prevent the North Sea grade from falling below $60 per barrel, OPEC + should add another 0.5 million b/s to the current cut of 1.2 million b/s. According to Russia, it is too early to talk about an increase in obligations.
Dynamics of WTI and OPEC production volumes
The reduction in the growth rate of shale production in the United States looks like a natural process. Manufacturers are looking at the slowdown in global demand, do not increase investment. Only their faith in the successful conclusion of the trade conflict between Washington and Beijing can save the situation, but if this happens, the oil will react much faster to a potential increase in world demand than to a gradual increase in shale production in the States.
When there is a delicate balance in the market, even a minor new driver can start a wave of purchases or, conversely, sales. It is quite possible that after the Fed meeting and the release of data on the US labor market for October, the US dollar will become such a joker. Jerome Powell will have a difficult task – to protect the stock markets from correction. His "hawkish" rhetoric, including the mention of a long pause in the process of reducing the rate, is fraught with a fall in the S&P 500. Having wished to be safe, the Fed chairman may leave the door open for further reduction of the federal funds rate, which will negatively affect the USD index and allow the oil to grow up.
Technically, on the Brent daily chart, after the implementation of the first target according to the "Wolfe wave" pattern, the formation of a "double bottom" is planned. A confident breakthrough of resistance at $ 62 and $63.7 per barrel will allow the "bulls" to count on the continuation of the rally in the direction of $70.75 and $72.5.
Brent, the daily chart
