Brent sell

Selling Brent amid weaker global demand

11 December 2023 137
Selling Brent amid weaker global demand

The decline in global demand for oil is due to the risks of recession in the U.S. and negative processes in the Chinese economy as the main consumer of oil.

Such gloomy prospects for the oil market may well drive prices even lower.

World oil suppliers, primarily the OPEC+ countries, started to take another precautionary steps.

Thus, OPEC+ members agreed on an additional reduction of oil supplies by 1 million barrels per day at their meeting last Thursday. This reduction was announced along with the long-awaited extension of Saudi Arabia's voluntary production limitation by the same amount for next year.

Since July, Saudi Arabia has been implementing an additional voluntary production cut of 1 million barrels per day, which Energy Minister Prince Abdulaziz bin Salman called a "lollipop". Saudi Arabia has been pressing the rest of OPEC+ to join in as oil prices fell by more than 10%.

A deeper collective reduction might prevent the oil surplus predicted to grow early next year.

That said, the new OPEC+ production cut of 1 million barrels per day for the entire group may actually be half that in real terms, as some countries are already below their production targets. Some of the most influential figures in the oil market, such as Saudi Arabia's energy chief and Russia's deputy prime minister, have publicly assured that supply constraints could be extended beyond March.

But despite all the protective measures in place, oil traders ignored a pledge by Saudi Arabia and its allies to cut supplies, remaining skeptical of its fulfillment.

Despite numerous attempts by the group to support sentiment, the market continues to decline.

Traders doubt OPEC + will provide enough cuts to curb the looming surplus. Growth in oil demand is slowing, and rival supplies are rising - especially from the cartel's old foe, the U.S. shale companies. The U.S. oil production soared to a record high of more than 13 million barrels per day as shale companies were encouraged again by the support OPEC+ gave to prices earlier this year.

“Everyone’s turned negative to oil, not least because the U.S. has accelerated this year in terms of production,” said Paul Sankey, founder of Sankey Research LLC.

“OPEC’s strategy looks fragile,” because supporting prices is simply financing a tide of the U.S. shale oil, said Doug King, chief investment officer of the Merchant Commodity Fund.

“The market has proved to be very disappointed in the OPEC+ measures,” said Max Layton, head of commodities research at Citigroup Inc. The measures are “not enough to prevent a gradual deterioration of the oil balance” next year.

According to the International Energy Agency (IEA), global markets will continue to weaken next year as China's demand is hampered by financial difficulties, while supplies around the world rise.

From a technical point of view, the Brent price is "attracted" by the level of $65 per barrel. And this is likely to be the first target for further decline.

If the economic situation in the world continues to worsen and global demand, primarily from China, declines, this will open the way for Brent to the next level, which has long been awaiting its retest of $50 per barrel.

Overall recommendation is to sell Brent.

Take profit at the level of 65.0 A stop-loss could be set at the level of 85.0

This content is for informational purposes only and is not intended to be investing advice.

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