FX.co ★ Oil looks forward to supercycle. Will Brent hit $100 a barrel?

The drop in temperature in Texas from -1 to -18 degrees Celsius led to a power outage in the region and disabled the oil industry. As a result, black gold production in the United States fell by 1.7 million b/d, and WTI quotes rose above $60 per barrel. And even though the problems caused by frost look like a temporary phenomenon, there is no reason to doubt the "bullish" conjuncture of the oil market.

The cold season in the US, which leads to an increase in demand for petroleum products and a reduction in the country's oil reserves, is one of the drivers of the growth of Brent and WTI quotes since the beginning of the year by 22-23%. Many banks and investment companies believe that the rally is just beginning. The commodity market is at the start of a supercycle, which is capable of bringing the North Sea variety to $100 a barrel. JP Morgan and Goldman Sachs expect global oil demand to continue to rise even as the pandemic dies down. At the same time, the decline in production investment during the lockdowns makes the prospects for a supply recovery bleak.

This gap between supply and demand is one of the conditions of the so-called supercycles. They usually last around 10 years, and their onset is associated with significant monetary and fiscal incentives that drive up consumption. Although Brent almost tripled from the April bottom, the North Sea still looks very cheap compared to US stocks. As, however, and other assets of the commodity market.

Dynamics of the ratio of assets of the commodity market and shares

Speculators are attracted by the stories of the 1970s and 2000s. For example, as a result of the supercycle that started in 1998, Brent quotes soared to $147 per barrel in 2008. Who knows if that story can repeat itself? So far, only one thing is clear - the potential for oil growth is far from being exhausted. Typically, during recessions, both supply and demand decline, especially if pandemics and lockdowns are at the root of recessions. During the economic recovery, both indicators rise, but if demand expands faster than supply, the reduction in global stocks will lead to a continuation of the upward trend for black gold.

Let's not forget about the weakening US dollar. If in January, the US dollar was supported by an increase in the yield of Treasury bonds due to expectations of an increase in the issuance volume, then in February, the rally in the bond market rates does not particularly help the fans of the USD index. Investors are determined to restore the global economy, albeit led by the US. Therefore, strong statistics for the United States hurts rather than helps the dollar.

Technically, a Wolfe Wave pattern was formed on the Brent monthly chart. The pullback from the support at point 5 and the return of quotes above the high of the bar at point 3 should have been used for purchases, which we did in 2020. Another reason for the formation of longs, by the rules of building the model, may be a breakout of lines 2-4. Targets are located near $90 and $94 per barrel. The recommendation is to keep long positions and build them up on pullbacks.

Brent, monthly chart