Everyone forgot about America. For a long time, the oil market lived on news from Russia, where, despite Moscow's announced production cuts, exports did not decrease. From China, from which investors expected a rapid economic recovery and growth in global demand for oil. From the Middle East, where OPEC+ surprised with unexpected production cuts, and supply disruptions from Iraq contributed to the Brent rally. The U.S. was only mentioned in terms of recession, rising Federal Reserve rates, and a weakening dollar. And now, news about the decline in gasoline demand for two weeks in a row has dropped the prices of leading oil grades by 5% immediately.
Buy the dip. For the past several weeks, traders have been dreaming about this. A combination of OPEC+ production cuts, rising global demand led by China, and a weakening U.S. dollar points to the strength of the Brent's upward trend. And now, bad news about gasoline from the States has provided such an opportunity: a pullback in the North Sea grade – an ideal chance to buy?
On paper – yes. On the eve of China's Golden Week holiday, investors are closely monitoring the demand for aviation fuel. According to JP Morgan estimates, for the week ending April 15, the indicator reached 75% of the pre-pandemic level. China is returning to the skies, and this is good news for the global economy and oil.
Dynamics of Chinese demand for aviation fuel
If good news for oil comes from Asia, then from Russia – not so much. It seems that Moscow wanted to scare the market by cutting its own production by 700,000 bpd. It is unknown whether this happened as announced or not, but the preservation of Russian oil exports from seaports at 3.4 million bpd suggests otherwise. The indicator reached a new maximum on average for four weeks. Its elevated levels offset the factor of supply issues from Iraq and Sudan and restrain the bullish momentum for Brent.
In conditions of tug-of-war between Chinese demand and Russian supply, the decline in gasoline demand in the U.S. has tipped the scales in favor of the "bears" for the North Sea grade, although its medium- and long-term prospects remain positive.
Dynamics of oil deliveries from Russian ports
Pressure on oil was exerted by First Republic's corporate report for the first quarter. This bank, unlike the other three, managed to avoid bankruptcy, but a sharp decline in its profitability indicates that it is still struggling. As is the entire system of small and medium-sized credit institutions, faced with deposit outflows. The banking crisis may flare up with new force and provoke a recession, which will negatively affect global demand for oil.
Technically, there is a pullback to the upward trend on the daily chart of Brent. In this case, a successful assault on the pivot points at $83.05 and $84.05, as well as the fair value at $85.05 per barrel, could form the basis for establishing long positions in the North Sea grade.