The intention of OPEC+ to keep the powder dry and the attacks on oil facilities in Saudi Arabia raised Brent quotes above the psychologically significant level of $70 per barrel for some time. There is no doubt about the strength of the upward trend, and any pullbacks attract buyers of a physical asset due to a significant shortage in the market.
Riyadh was able to convince the rest of the alliance to maintain a wait-and-see approach. Yes, the epidemiological situation in the world is improving. But who knows if we are talking about the light at the end of the tunnel or the headlights of the oncoming express? The best course of action in the current situation is to sit on the sidelines, which is what OPEC+ intends to do. At the March meeting of the cartel and its allies, it was decided not to increase production by 500,000 b/d, as originally planned. At the same time, Russia and Kazakhstan are allowed to increase production by 150,000 b/d, and Saudi Arabia will continue to produce 1 million b/d less than it is allowed by the terms of the agreement.
If prices for the North Sea variety remain at current levels near $70 per barrel, it will be a real treat for many producing countries in the Middle East. Their break-even point will be exceeded, and surplus budgets will accelerate the recovery of national economies.
Break-even points for producing countries from the Middle East
On the contrary, there are growing conversations on the part of net-consumers of black gold that too rapid growth in Brent and WTI quotes threatens to disrupt the rapid recovery of global GDP. I do not think that such statements scare the oil bulls. According to Morgan Stanley, to thwart the rapid return of the global economy to the trend, the North Sea variety should cost $85 per barrel. It looks like the potential of the upward movement of black gold is far from being revealed.
An attack by Iranian-linked Houthi militants on facilities in Saudi Arabia has been a new catalyst for the Brent and WTI rally. Investors immediately recalled the story of September 2019, when the shelling of a key processing plant and two fields led to a decrease in production by about a month and an increase in the North Sea grade from $76 to $86 per barrel. This time, it seems, everything worked out: Riyadh reported that there was no damage, no human casualties. This reassured investors and caused oil to retreat. Moreover, the strong US dollar played on the side of the "bears".
The strengthening of the dollar associated with the rapid rally in the yield of Treasury bonds seems to be almost the only restraining factor for buyers of black gold. At the same time, the increase in the rates of the US debt market is a reflection of growing hopes for an economic recovery. The US is one of the largest consumers of oil, so GDP growth of 8-10% in the first quarter and more than 7% in 2021 is good news for the main brands.
Technically, on the weekly chart, the Wolfe Waves pattern continues to be realized with targets at $90 and $94 per barrel. The recommendation is to buy.
Brent, weekly chart
