Brent quotes dynamics analysis, 12.06.17
On Friday Brent quotes on the spot market reached the bottom of the long-term rising trend, which began last year (pic.1). The price minimum was $47.42 for a barrel, and then it started growing cautiously. On Monday, while Russia was having a bank holiday, Brent was traded at $48-49 in London.
There are no fundamental reasons to break the rising trend. The oil exporting countries have prolonged the agreement on production cut and are observing it quite carefully. In April (the data for May is not available yet) Iraq and Iran decreased their production by 0.7-0.8%, all the OPEC countries combined produced 31.732 mln bpd. With the low price oil consumption continues to grow by 1-1.1% a year. There is still tension in the Middle East; a dozen of countries are already fighting in Syria, including the US, Russia, Turkey, while the confrontation of the Arab courtiers with Iran and Qatar has gained force.
The low price is possible to sustain due to nothing but disinformation concerning huge perspectives of the shale oil. Meanwhile, the production increase of 8.8% in the first quarter is registered only in the Bakken oilfield. A decline has started in the main (Texas) part of the Permian. As far as the Eagle Ford is concerned, this year’s production is 6.9% lower that last year’s even though the rig count has grown from 47 to 84. All in all, some increase in the US production can surely be seen, thought it’s far from maximum (pic.2).
Nevertheless, speculative moves at the stock exchange are so powerful, that further decrease in prices can't be totally excluded. The chance of this happening is not too high, about 15-20% and the lowest the price can drop is $44-45 for barrel. Then a bonce back to $52 should be expected.
The more realistic scenario is that the price will have gradually risen up to the same $52 by the end of July and it will continue growing till $58.