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The series of losses recorded by the oil sector has plunged prices into a bear market and has repercussions worldwide, the chaos affecting everyone from bond traders to political leaders and fund managers. When they are looking for price responses that advertise, they may be well aware of these potential hotspots in order to find clues about the future of the crude. .
Supply Reserve
The US decision to grant waivers that will allow Iranian oil importers to continue to buy despite the sanctions has deconstructed expectations of an imminent tightening of supply, contributing to the drop in crude oil. While OPEC and its allies, including Russia, were anticipating a drop in Iranian exports to zero, Saudi Arabia, the de facto group leader, now claims that producers should cancel about half of their production increases earlier this year.
President Donald Trump has tweeted that they should not reduce their production, setting up a showdown between the US administration and OPEC before the December 6 meeting in Vienna. Will the Saudis continue to demand cuts and will their allies line up? Or will Trump's risk of anger persuade them to give up? Investors should also monitor shale deposits in the United States, where drillers have continued to increase the number of rigs. Companies typically set out their capital expenditure plans months in advance, and with production coming online months after the start of drilling, the US production gain – already at record levels – could continue to rise. to fall back into the future.
Greenback Gains
The dollar reached this week's highest level in 18 months against a basket of currencies. Since oil is traded worldwide in US dollars, emerging economies need more oil to buy local denominations. While the benchmark Brent World in the greenback is down from the previous year, it remains up 11% in Indian rupees and 14% in Brazilian real. That's the drag on demand in high-growth markets for oil consumption. The dollar could receive even more support next month if the US Federal Reserve raises interest rates to calm an economy with the lowest unemployment rate since the 1960s. The likelihood of a rise in December oscillates around 75%, based on futures negotiations of federal funds, and most Fed officials said they would support further gradual increases in rates.
Refining returns
A worrying sign of demand, profits from converting crude oil into fuel for cars reached their lowest level in at least three years after the end of the peak summer driving season. Poorer gasoline revenues weighed on lighter crudes, such as Brent, which produce a larger proportion of these petroleum products as refining incentives weaken. Certainly, Asian refiners have achieved healthy margins for diesel before the colder winter months and increased industrial activity in China, which bought a record amount of crude last month and is boosting stimulus packages aimed at mitigate the effects of a trade with the United States. appearing in Brent's declining premium on heavier and more sulphurous oil from Dubai, which is at its lowest in 15 months.
Plastic A-fantastic
Part of the pressure on refineries comes from weakness in the petrochemical sector, which accounts for 12% of global crude oil demand. Asian producers of ethylene, one of the key elements used in the manufacture of everything from plastic bags to toys, are being pressed by new US plants that use ethane, a byproduct shale gas, instead of petroleum-derived naphtha. The petrochemical sector is also feeling the heat of the US-China trade war. According to Tracey Zhou, Senior Consultant at Wood Mackenzie in Shanghai, utilization rates in Asian factories in the polyester producing nation are slowing.
Fallout Fund
Hedge funds reduced their net long positions in crude oil in New York, reaching their lowest level since September 2017, extending their decline for nine consecutive weeks. Bullish bets on US barrels have fallen more than 65% since January, when they had reached a record high, while fears of an overabundance of domestic supply and higher inventories were frightening investors. fund managers. A reversal may indicate increased investor confidence in the crude.
Technical targets
ICE Brent crude in London is below the lower bound of its Bollinger Band this week after crossing a key support level of the Fibonacci retracement of 50% in early November. The 14-day relative strength index, meanwhile, reached its lowest level in more than three years, with the world marker sinking deeper into the "oversold" territory. An badysis of Bollinger bandwidths should not occur, however. The gap is currently at its widest for almost two years – supported by the high levels of price turbulence over the last few weeks – indicating the likelihood of lower volatility in upcoming sessions. West Texas Intermediate oil was little changed at $ 55.74 a barrel at 10:29 am in London, after falling in each of the previous 12 sessions, a record-breaking series of losses. Brent was $ 65.89 a barrel, down more than 20% from early October. – Bloomberg
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