Brent crude fell by 5.7% on Tuesday, sinking below $65 per barrel. American WTI is close to $55.50, the lowest value seen in the last year.
Investors have shifted their focus away from the fears of decreasing oil shipments due to sanctions against Iran, as there are many countries on the horizon who want to replace the drop-off shipments inside OPEC+. This is Iraq, Russia and Saudi Arabia. Meanwhile, Iran wants to retain its markets share, hoping to keep a significant part of its exports.
Against this background, the fears of supply disruptions in the near future have vanished from the market. Again, we are in a situation in which storing oil is more profitable than selling it on the spot market. However, it is worth noting that supply is likely to grow in the future.
An important driving pressure of oil prices in the last month was the resumption of speculation around overproduction. The forecasted growth of production in the next year exceeds, almost twice, the forecasted increase in demand.
American drilling is breaking records, and OPEC predicts that the United States will increase its production by another 2 million barrels a day by the end of next year. The cartel, in turn, predicts a decline in demand for its own oil and indicates a slowdown in demand growth.
It is also worth paying attention to the technical factors behind the previous day’s collapse. We have recently noted that entering the bear market is often preceded by a further decrease of 20% in prices. In our case, these levels are about $55.5 per barrel for Brent and about $50 for WTI. The fall of oil yesterday was very impactful, causing avalanche of stop orders.
Despite the extreme levels of oversold readings observed in market oscillators, the decline in oil may keep its momentum in the coming days as long as market players see the recent decline as the end of the oil growth trend. From the technical analysis perspective, the nearest important levels may be remote marks near the next round level and previous local minimums, at $50 for WTI and $62-63 for Brent.
Alexander Kuptsikevich, the FxPro analyst