Oil targets $100 per barrel

By Gleb Baranov

September has turned out to be the best month of this year for oil prices so far. Last Friday, West Texas WTI, and on Monday, North Sea Brent, broke through the strong resistance levels, then reaching highs not seen since November: $88.08 and $91.15, respectively.

It was difficult for the correction in the zone, which prices had unsuccessfully stormed more than once, became support and was nearby (slightly above $89 for Brent). And prices until the end of the week fluctuated between new records and former resistance, forming a typical “flag”.
In technical analysis, this is a continuation figure in a strong trend - and oil futures did not abandon the corresponding attempts all week.

They have repeatedly approached $91 per barrel in November Brent futures, and sometimes crossed this line. The next attempt took place on Friday evening, so the high of the day was $91.01.

As a result, both WTI and Brent closed the second week in a row with growth, and did not roll back much from the highs of both the day and the year. This suggests that many bulls decided to move positions through Saturday and Sunday.

Similar confidence was observed last Friday, despite the fact that then the weekend was long for many (on Monday the US had a holiday in honor of Labor Day). Then records followed, and this time there are some chances of moving up from the “flag”. Growth on Monday after a week closed near the maximum is not uncommon.

Another thing is that, despite the records, the growth there was very small in comparison, for example, with the previous one - only 2.2%. This may cast doubt on the strength of the bulls, especially since both marker grades of oil are in the technical overbought zone for the sixth day in a row.

So in the short term, not everything is clear, but in the long term, the chances of growth are great. And not for technical reasons, but for completely fundamental reasons.

The formal reason for setting records was statements by Russia and Saudi Arabia on Tuesday that the reduction in oil supplies would be extended until the end of the year. In fact, multi-month resistance was broken in advance - for WTI on Friday, and for Brent on Monday. And the reason is not inside information, but in the objective situation on the physical oil market.

Here a deficit is gradually growing, the very presence of which not all players have yet realized. But, for example, Goldman Sachs estimates it at 2.3 million barrels per day (b/d).

Western business media, against the backdrop of record oil prices, console the bears with stories about the problems of its largest importer, China. Here is the heaviest rain in 140 years, and a sluggish recovery from the pandemic, and a drop in exports and imports, and measures to stimulate the economy that do not meet anyone’s expectations, and so on.

Of course, there are some problems in China, especially in real estate, but the bears have much more of them. The main thing is that you can say whatever you want, but global demand for oil is growing. And its purchases from China are especially growing.

According to the General Administration of Customs of the People's Republic of China, it imported 52.8 million tons in August, which is 20.9% more than in July. Compared to the last month of summer last year, the increase was 30.9%. Oil imports in January–August amounted to 378.55 million tons, which is 14.7% more than in the same period of the previous year.

Probably, there could have been even more (if, for example, imports had not dropped in July). But this is quite enough for oil prices to rise. After all, its supply is not only limited by the actions of OPEC+, but the market has not yet even felt the full effect of them. This is a matter for the future.
Now the cartel would have to make some efforts to contain oil prices in the face of growing shortages. But you don’t need to do anything to grow.

Saudi Arabia could have single-handedly tightened market conditions if it had simply kept exports as low as they were in August, said David Veche, chief economist at Vortexa. In his review, he writes: “It appears doubtful that Saudi Arabia can truly maintain production and export levels at August lows until the very end of the year without sharply tightening market conditions and pushing prices well beyond the $100 per barrel threshold.”
This article originally appeared in Russian at expert.ru and was translated and edited by Rhod Mackenzie