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27.08.2024 01:32 PM
Oil Rises from the Ashes

Geopolitics, expectations for the start of the Federal Reserve rate cut cycle, positive news from the US and China, and risks of a production halt in Libya at 1.17 million bpd have revived oil prices. Brent quotes surged more than 7% over three trading days, bullish spreads for North Sea crude in the futures market rose from $62 cents to more than $100, and Exxon Mobil warned that there will be no reduction in demand until 2025. If producers do not increase investment in production, prices could jump fourfold due to reduced supply.

This forecast contrasts with the projections of the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA), which expect a gradual decrease in global demand for crude oil amid the transition to alternative energy sources. Combined with the gradual withdrawal of OPEC+ from commitments to reduce production, major Wall Street banks can lower their Brent forecasts. For instance, Goldman Sachs predicts that the average Brent crude prices will be $77 per barrel in 2025 due to a market surplus, while Morgan Stanley estimates a range of $75-78.

So far, pessimistic scenarios have not materialized. Oil inventories at Cushing have fallen to six-month lows amid rising demand from U.S. refineries. The Fed's readiness to start a monetary easing cycle should theoretically boost demand for crude oil in the U.S. At the same time, the acceleration in the growth of industrial profits for Chinese companies from 3.6% to 4.1% year-over-year in July is seen as a ray of light in an otherwise cloudy economic outlook for China.

Dynamics of Oil Inventories at Cushing

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Hopes for increased demand in the world's largest oil-consuming countries, combined with supply problems from North Africa and the Middle East, are fueling bullish attacks on Brent. The ongoing political crisis in Libya is leading to a reduction in exports and production. The latter is estimated at 1.17 million bpd, approximately 1% of the global output.

Another 3-4% of global supply could be affected in the event of a direct conflict between Iran and Israel. After recent exchanges of strikes between Jerusalem and Hezbollah, the conflict seemed to subside, but U.S. intelligence does not rule out retaliation from Tehran. Israeli retaliation could target Iran's oil infrastructure, potentially triggering a sharp increase in Brent prices.

Dynamics of Industrial Profits in China

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Moreover, neither Hezbollah nor Jerusalem accepted each other's adjustments to the U.S. plan for a ceasefire in Gaza. Geopolitical risks in the Middle East have not disappeared, and combined with the rise in global oil demand and supply issues from Libya, this contributes to rising prices.

Technically, on the daily chart, Brent is forming a 1-2-3 reversal pattern. It's advised to hold long positions initiated from $79.30 per barrel and potentially increase them if the resistance at $82.55 is breached.

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