If we recall that the Texas grade fell below zero in April, then there seems to be no doubt that 2020 was a real disaster for the oil market. Because of the pandemic, people tried not to leave their homes, the demand for black gold plummeted, storage tanks overflowed, and traders began to offer their partners money to take away their extra barrels. According to CME Group, what we saw this year was the biggest demand crisis in history. In fact, if you put aside the emotions and understand the numbers, everything may not be as sad as the media try to imagine.
Global oil demand in 2020 sank by about 10 million b/d. That is, following the mathematics, mankind simply cannot live without 90 million b/d (even in a pandemic), everything else is surplus. According to OPEC forecasts, in 2021, about 60% of what was lost in the outgoing year will be restored. We are talking about 5-6 million b/d. On the one hand, their entry into the market will contribute to the continuation of the rally of Brent and WTI, on the other, it will return American producers to the market. OPEC+ policy in 2021 is likely to turn from stimulating to restraining, which deprives the bulls on black gold of an important trump card.
Although, to be honest, it is not a big loss. A massive fiscal stimulus of $900 billion from the US Congress and the intention of Democrats to increase the check per American from $600 to $2000, which will expand the amount of aid by about $464 billion, increase the risks of a reflationary environment. In it, the assets of the commodity market feel like a fish in the water. It is not surprising that at the end of the outgoing year, the oil and gas sector, a clear outsider in the US stock market, temporarily bypassed the real estate sector.
Dynamics of the outsider sectors of the US stock market:
Rising global demand for black gold, a reflationary environment, a new super-cycle of commodity market assets, and a weak dollar. What could be better for Brent and WTI bulls? Thanks to the fact that Donald Trump first lost the presidential election, and then signed a bill on fiscal stimulus, uncertainty has decreased, financial market volatility has fallen, and the US dollar has weakened. Due to the expansion of the double deficit (negative current account and budget balances), the unattractive real yield of US Treasury bonds for non-residents, and the ongoing sale of safe-haven assets, the medium - and long-term prospects for the dollar look bearish. At least until the Fed starts thinking about normalizing monetary policy. This is unlikely to happen before the second half of 2021.
Technically, on the daily Brent chart, events continue to develop within the Wolf Wave pattern with targets at $54.3 and $56.5 per barrel. They correspond to important pivot levels. The pullback of the North Sea grade of oil to support at $49.4 allowed us to form long positions. I recommend holding them and using black gold corrections to build up longs.
Brent daily chart: