After a two-week consolidation in the range of $54.5-56.5 per barrel, Brent surged thanks to the speed of vaccine deployment, a decrease in the number of people infected and killed by COVID-19, and the belief that the pandemic will still be won. OPEC data contributed to the growth of quotes of the North Sea variety, indicating that the cartel fulfilled its obligations to cut production by 103% in December, and the non-member countries participating in the agreement by 93%.
This is how the markets work: after a violent rally, a period of consolidation follows. They are like travelers - they cannot walk in one direction for an infinitely long time, they need a halt. Concerns about vaccine problems in Europe and new strains of COVID-19 have become the main weapon of the bears of the oil market. These factors raised doubts about the rapid recovery in global demand for black gold, which Brent and WTI served faithfully in the second half of 2020. Nevertheless, the fact that more than 25 million Americans received their vaccine doses and Joe Biden intends to bring this number to 100 million in the first 100 days of his term in office made fears subside.
Most likely, the plan of the 46th President of the United States will be implemented faster, and the EU will follow the example of Britain and the United States and speed up the vaccination campaign. According to UBS, since a critical part of the world's population will be vaccinated, global oil demand will continue to grow. At the same time, the intention of OPEC + to stabilize the market through production cuts will help reduce global reserves of black gold and increase Brent to $63 per barrel in the second half of 2021 and $65 per barrel in the first quarter of 2022.
The oil market conjuncture confirms the bank's bullish views. The backwardation for the North Sea grade indicates that significant reserves of black gold accumulated in the past year are decreasing and, most likely, will continue to do so.
Oil market conditions
According to Goldman Sachs, the change in the balance in the oil market continues to exceed the consensus forecast. The bank raised its estimate of the deficit from 500,000 b/d to 900,000 b/d in the first half of 2021.
In such a situation, much will depend on OPEC +. In January, production by the cartel and its allies rose for the 7th month in a row, this time to 25.75 million b/d. Nevertheless, the fact that the final result was less than expected by Bloomberg experts supported the prices. So far, Saudi Arabia is taking the lion's share of the responsibility, which announced a unilateral cut in production in February and March by 1 million b/d, but who knows how the OPEC + meeting in March will end.
Technically, on the Brent daily chart, the Splash and Shelf pattern is being implemented. The breakout of the upper border of the consolidation range of $54.5-56.5 per barrel ("shelves") activated this pattern. In the event of a retest of the current support at $56.5, which previously served as resistance, traders will have the opportunity to form or build up longs. In general, the buyback strategy remains relevant. The target of the upward movement is the $64 mark or 261.8% for AB=CD.
Brent daily chart