Will oil recover after an extremely weak start to the year? This question is stirring the financial markets. At the outset of 2023, oil was given numerous advances associated with the growth of global demand led by China. An expected reduction in production by OPEC+ in general and Russia in particular, also contributed to optimistic forecasts for Brent. Alas, uneven recovery of the Chinese economy, fears of a recession in the U.S., and an increase in oil export from Russia caused the North Sea grade to fall by 12% in 2023.
Understanding that the situation is critical, the U.S. Department of Energy reported the purchase of 3 million barrels of oil to replenish strategic reserves. The amount is symbolic. However, the implication is important: the States are not satisfied with too low prices. They reduce the tax revenues of the budget from oil companies. If in 2022, the White House was selling oil and reduced reserves to a minimum mark since 1983 to limit Russia’s revenues, now, it has changed its tactics.
Dynamics of oil reserves in the U.S. strategic reserves
It should be noted that last year’s U.S. strategy was not successful. Moscow found new buyers for its oil, mostly in China and India. This led to a rise in the 4-week average volumes of offshore oil shipments from Russia to a record level since Bloomberg started keeping records at the start of 2022. Amid the surge in exports, the market continues to doubt that Russia is reducing production, despite all its numerous statements.
Meanwhile, Brent is trying to find a bottom not only due to the report about the U.S. purchases of oil to replenish strategic reserves. Forest fires in Canada have halted production at 300k bpd. In 2016 the figure reached 1 million bpd. The market is currently worried of the repetition of the situation from 7 years ago. OPEC reported a reduction in production of 191,000 bpd to 28.6 million bpd due to Nigeria and Iraq. However, Saudi Arabia’s production increase did not help.
Dynamics of Russian offshore oil supplies
Finally, another good news for Brent bulls came from China. There, the volume of oil refining increased by 18.9% in April to the second record level of 14.87 million bpd in the history of observations. This indicates high demand for black gold in the largest consuming country and supports the North Sea grade.
Unfortunately, the overall macroeconomic background remains unfavorable. Despite strong statistics on the U.S. labor market, the threat of a recession has not disappeared. This time it is associated with a potential default due to the debt ceiling. At the same time, a decrease in the likelihood of the Fed’s dovish pivot in 2023 strengthens the dollar. This is bad for oil.
Technically, on the daily chart of Brent, the combination of reversal patterns of Wolfe Wave, Double Bottom, and 1-2-3 increases the risks if not breaking the downward trend, then a deep correction to it. However, it makes sense to start buying the North Sea grade only in case of breaking resistance at $77.5 per barrel.
The material has been provided by InstaForex Company – www.instaforex.com
Will oil recover after an extremely weak start to the year? This question is stirring the financial markets. At the outset of 2023, oil was given numerous advances associated with the growth of global demand led by China. An expected reduction in production by OPEC+ in general and Russia in particular, also contributed to optimistic forecasts for Brent. Alas, uneven recovery of the Chinese economy, fears of a recession in the U.S., and an increase in oil export from Russia caused the North Sea grade to fall by 12% in 2023.
Understanding that the situation is critical, the U.S. Department of Energy reported the purchase of 3 million barrels of oil to replenish strategic reserves. The amount is symbolic. However, the implication is important: the States are not satisfied with too low prices. They reduce the tax revenues of the budget from oil companies. If in 2022, the White House was selling oil and reduced reserves to a minimum mark since 1983 to limit Russia’s revenues, now, it has changed its tactics.
Dynamics of oil reserves in the U.S. strategic reserves
It should be noted that last year’s U.S. strategy was not successful. Moscow found new buyers for its oil, mostly in China and India. This led to a rise in the 4-week average volumes of offshore oil shipments from Russia to a record level since Bloomberg started keeping records at the start of 2022. Amid the surge in exports, the market continues to doubt that Russia is reducing production, despite all its numerous statements.
Meanwhile, Brent is trying to find a bottom not only due to the report about the U.S. purchases of oil to replenish strategic reserves. Forest fires in Canada have halted production at 300k bpd. In 2016 the figure reached 1 million bpd. The market is currently worried of the repetition of the situation from 7 years ago. OPEC reported a reduction in production of 191,000 bpd to 28.6 million bpd due to Nigeria and Iraq. However, Saudi Arabia’s production increase did not help.
Dynamics of Russian offshore oil supplies
Finally, another good news for Brent bulls came from China. There, the volume of oil refining increased by 18.9% in April to the second record level of 14.87 million bpd in the history of observations. This indicates high demand for black gold in the largest consuming country and supports the North Sea grade.
Unfortunately, the overall macroeconomic background remains unfavorable. Despite strong statistics on the U.S. labor market, the threat of a recession has not disappeared. This time it is associated with a potential default due to the debt ceiling. At the same time, a decrease in the likelihood of the Fed’s dovish pivot in 2023 strengthens the dollar. This is bad for oil.
Technically, on the daily chart of Brent, the combination of reversal patterns of Wolfe Wave, Double Bottom, and 1-2-3 increases the risks if not breaking the downward trend, then a deep correction to it. However, it makes sense to start buying the North Sea grade only in case of breaking resistance at $77.5 per barrel.
The material has been provided by InstaForex Company – www.instaforex.com
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