Euphoria about a new mega bullish cycle in the oil market is coming to an end. As a result, both benchmark grades are consolidating in narrow ranges. It goes without saying that oil bulls are looking forward to a boost in global demand for energy. However, the third pandemic wave in Europe, rampant coronavirus rates in India and other major petroleum consuming countries make analysts cancel the optimistic scenario indefinitely. When do analysts expect a full-fledged revival in the energy market? The answer to this question will determine a further trajectory of global oil prices.
Meanwhile, investors are responding to positive news from China as the second largest economy managed to avoid the coronavirus resurgence. Another reason for optimism is a fast and successful mass vaccination in the US. China expanded petroleum imports by 21% in March. This is certainly a huge increase, but it is important to understand that it is due to low imports last year. On the whole, China's imports denominated in dollars surged by 38.1%, the sharpest increase since February 2017. It proves high domestic demand. Apart from that, energy investors are also encouraged by the state of affairs in the US. According to Bloomberg, US crude inventories have been contracting for three weeks straight. The government data indicates that the number of miles in highways covered by motorists during the Easter holiday has been the highest since March 2020. This is fresh evidence of the US economic recovery.
At the same time, the US energy information administration foresees expansion for 7 main shale oilfields for the third month in a row. Another worrisome sign is that OPEC+ decided to scale up daily oil output rates to 2 million BPD. These are bearish factors for both Brent and WTI prices. Extra barrels from the Middle East widened a spread between the North Sea benchmark and oil delivered via Dubai to the highest level in 16 months. On the one hand, this indicates that the cartel is winning back the lost share in the market. On the flip side, such developments will bring nothing good to oil bulls.
Dynamic of spread to judge availability of crude from Middle East
Obviously, growing oil supplies allow energy companies from the Middle East to push oil prices down. This attracts buyers from China and other countries. To keep their customers, competitors from the North Sea will have to follow suit and also downgrade invoices that will affect Brent market quotes. Interestingly, OPEC and its allies were well aware of this when they took a decision to scale up oil output. The decision was based on the prospects of recovering global demand. Meanwhile, global demand is still far from the pre-crisis levels. Personally, I believe that Europe will catch up the US and China because Europe is serious about pushing ahead with mass vaccination. So, the joint economic recovery will contribute to the overall rally in the oil market.
Technically, Brent crude is consolidating in the range of $61.1-64.9 a barrel in the daily chart. A breakout of the upper border will signal that the time is right to open long positions. This will entail risks of activating the Bat pattern with the target of 88.6%. This corresponds to $70.4. On the contrary, a successful breakout of support at $66.1 will cause a downward correction towards $58.5 with the consequent formation of the Wolfe Waves pattern.
Brent, daily chart
