Brent quotes analysis as of 04.08.18
In the beginning of July Brent prices began to retreat from June’s maximums, in the middle of the month the descend facilitated and reached 8.5% (pic.1). After the price reached $72 it bounced back up. The month’ trading closed at $74.31, in the beginning of August the bears won a Dollar from the bulls.
July doesn’t normally have much news, so the main reason for the decline was the extensive overbought. Weekly charts (see pic.1) indicate that the growing trend has become stronger compared to last summer bringing the quotes to $80.5, which is 82% higher than last year’s minimums. I expected a correction in the end of May but it happened almost a month later.
As usual it took different newsbreaks to speculate for a fall. The main one being the American President’s speeches addressed to the OPEC+ that seem to have agreed to add 1 mln bpd to oil production. It is time to think about it anyways because the OPEC’s production decrease in May reached 2.2 mln bpd, meaning that they exceeded their obligations by the very million they now agree to add. However they failed to do so.
In June the Saudi Arabia added 405 thousand bpd, Quwait and the UAE together added 62 thousand bpd, but because of the decline in Libya, Angola, Venezuela and Iran the added production of the OPEC amounted to just 173 thousand bpd. Besides, in the Saudi Arabia itself only a half of the incremented production came from the formations, the other half came from tanks and tankers. According to the most recent data, the stock in July became scarce, while production from the formations declined by 200 thousand bpd.
Oil production in Russia is declining too. In June it amounted (including gas condensate) to 11.2 mln bpd, the total for the first half of the year declined by 0.4%, while the oil export decreased by 4.7 %.
Finally, according to the field production data, the US average daily production has been fluctuating within 10.9-11 mln barrels during the last two months, meanwhile verified data indicates that it amounted to 10.44-10.47 mln bpd in March-May. The 5% difference only makes one mistrust the American statistics. Besides, the commercial stocks of oil in the US added 8 mln barrels in July after June’s decrease of 20 mln barrels and went down to the 2015’s level, which contradicts the previously made forecasts of extensive increase in shale production.
The energy “policy” of the American President is really something that makes me smile. It seems he carries fire in one hand and water in the other. With one hand he pushes the OPEC to increase oil production, with the other one he imposes sanctions on Venezuela, Iran and Russian oil companies. Unfortunately, no one can produce oil with the tongue, it takes investment, new reserves, a sales market. I think that the increase in the price for petrol in the autumn will convince the anxious American president how inadequate his actions have been.
Let’s go back to pic.1. We can see that a declining trend has started forming. If it stays, in the worst case scenario the Brent price will be $65 by the end of the year. It correlates quite well with my forecast for 2018. However, the chance of this happening is small, about 15-20%. The Brent price is more likely to fluctuate around $70.5 in August, then it will start growing in September-October, while in the end of the year we’ll witness an attack of the barrier of $80.5. It’s difficult to say how successful it will be. Anyway, the price dynamics doesn’t look bad neither for Russia nor for global oil companies.