Brent Oil Forecast: Sustainable higher oil prices?
Brent oil prices, which decreased to 16 USD levels as a result of the decreasing demand during the pandemic period and the steps taken to increase the supply between the Saudis and Russia, climbed to 63.74 USD in 11 months.
Reasons for oil rally:
Expansionary policies of global central banks
The expectation of the new US president Biden to increase spending on infrastructure
The possibility of re-opening of economies by loosening quarantine measures due to vaccine
Weak dollar and future inflation expectations
OPEC countries led by Saudi Arabia to cut the production
After the slowdown of production in Texas due to the cold weather in the USA and the Saudi Arabian-led coalition forces supporting the Yemen government announced that they had shot down an Iran-backed Houthi-laden dron which is armed by heavy explosives, oil prices opened with a gap.
The International Energy Agency stated in its latest report that it expects daily oil demand to increase by 5.4 million barrels to 96.4 million, and 60% of the demand lost during 2020 will return. Demand expectation of 96.4 million also means a daily cut of 200,000 barrels, according to the report previously published by the IEA.
On the supply side, US production is expected to increase by 11.2 million barrels per day for 2021 (940,000 barrels decrease per day in 2020). Canada has increased its production to record levels in plentiful condition. In total, Non-Opec countries are expected to increase their daily production by 830,000 barrels (1.3 million barrels decrease per day was in 2020 production).
Chinese New Year and Restrictions – Demand Alerts
A possible decrease in Chinese demand, which was one of the important factors in the recovery of oil prices last year, may have a negative impact on prices.
Before the Chinese New Year, which started on February 12, the government imposed travel restrictions and the announcement that only those who showed the Covid 19 test results will be allowed to go to the countryside will slow domestic tourism.
Another noteworthy issue was the slowdown in oil demand in China, even before the holiday season. A 50% decrease in air traffic in Beijing and Shanghai compared to previous years gives warnings about the forward demand.
What Level Should the Prices Be for the Balance Sheet Balance of the Oil Producing Countries?
Looking at the table below, if the prices approach 60 USD, the balance sheets of many countries will balance, while this figure is at the level of 40 USD for Russia.
As the prices increase, it is questionable how loyal OPEC countries will remain to the agreement.
Futures Markets – Backwardation
It is noteworthy that while the April futures contracts are priced at USD 63.20 in Brent oil, the May futures are priced at USD 62.67 and the December 2021 futures contract at USD 58.96 in the far leg.
On the daily charts, the Bearish Bat formation, which started to form, is remarkable. The pattern will continue to work as long as the price remains below $ 72.30.
In an ideal form, I predict the reverse movement to come before exceeding 65 USD.
Cycle Sniper and RSI ZZ ındicators show us that a bearish reversal is coming soon.
I believe that the uptrend in Brent oil active futures contracts will end with the removal of the news effect due to cold weather and Drone attack.
Short term : As long as daily closes below 65.20 USD my targets are:
I am waiting for a retracement to 57 USD levels.
Long term: As long as the price remains below 72.30 USD, I will follow the 50 and 34 USD levels, respectively.
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