Brent will build a wall

Improving global risk appetite allowed Brent and WTI bulls to resume the offensive. Donald Trump was able to reach an agreement with Congress on the construction of a wall on the border with Mexico and although the total amount of $ 1.38 billion over 55 miles turned out to be less than requested, the fact that it would be possible to avoid a second shutdown of the US government had a positive effect on the US stock market. "Demand a lot and achieve your goals, albeit on a smaller scale," seems to be the motto of the White House host, which allows us to hope for a breakthrough in the trade talks between Washington and Beijing. If it happens, oil will have an important argument to continue the rally due to a reliable global demand.

According to UBS, the reduction in production of OPEC and other countries of producers by 1.2 million b/s and a healthy interest in black gold from consumers can lead to pleasant surprises from global reserves, which will have a positive impact on prices in the next few months. The Bank of America Merrill Lynch predicts that the average price of Brent in 2019 will be $70 per barrel. However, some investors believe that 16% of the oil rally from the beginning of the year begins to run out of steam. As a result of the five-day period by February 5 speculators increased short positions for the first time in the last five weeks in the North Sea variety by 28%. Against the background of a modest increase in longs (+5.2%), net long positions declined by about 1% to 233995 futures and options contracts.

Dynamics of speculative positions on Brent

Along with improving the global risk appetite, support for Brent and WTI bulls has been aggressively cutting OPEC production led by Saudi Arabia due to the temporary closure of a part of the Keystone pipeline through which oil flows from Canada to the States, as well as, military clashes near the main black gold deposit in Libya. Additionally, there is the US sanctions against Venezuela and the uncertainty regarding the prolongation of Washington's grace period for purchases of Iranian oil. Also according to polls by experts from Bloomberg, the US stocks will increase by 2.4 million barrels by the end of the week by February 8.

Saudi Arabia is acting aggressively and is ready to cut production to 9.8 million b/d in March, which is 500 thousand b/d more than it promised in the framework of fulfilling its obligations under the OPEC treaty and other producing countries. As a rule, such statements lead to higher prices for black gold. However, a strong US dollar is tied to the legs of the "bulls" weights. The central banks and competitors of the Fed do not intend to normalize the monetary policy, which puts pressure on the currencies issued by them and contributes to the growth of the USD index. Since futures contracts on oil are denominated in dollars, the strengthening of the latter leads to a decrease in prices on the derivatives market.

In technical terms, the Brent correction continues as part of the transformation of the Shark pattern to 5-0. Reversals to 38.2% and 50% of the CD wave are usually used to form short positions.

Brent daily chart