Brent: how long will the correction take?
According to the US Department of Energy on Wednesday, commercial oil reserves in the country decreased by 1.863 million barrels (in the week of February 26 - March 4) after falling by 2.597 million barrels a week earlier. The forecast of economists assumed a decrease in reserves by only 0.657 million barrels. The Energy Information Administration (EIA) of the US Department of Energy also announced a reduction in gasoline and distillate inventories by 1.4 million barrels and 5.2 million barrels, respectively. Analysts polled had expected a decline in gasoline and distillate inventories by 2.2 million barrels and 1.8 million barrels, respectively.
According to a study conducted by S&P Global Commodity Insight, OPEC+ oil production in February amounted to 38.38 million barrels per day. This is 764,000 barrels per day lower than the volumes agreed in the coalition.
However, oil prices declined sharply on Wednesday after hitting new multi-year levels a day earlier. Thus, the price of a barrel of Brent oil jumped on Tuesday to the level of $131.00 per barrel (the highest price in almost 14 years). The day before, US President Joe Biden signed a law banning the import of Russian oil into the country. U.S. gasoline prices topped a record high in 2008 after Biden announced a ban on Russian oil imports. Although Russia's share of US imports of oil and petroleum products in 2021 was only 8%, Russia is the second largest oil exporter in the world. It supplies the world market with 4.5 million barrels of oil and 2.5 million barrels of petroleum products per day.
Despite a number of positive factors for the oil market, the price still fell on Wednesday. Thus, quotations of futures for Brent oil fell on Wednesday to $110.00 per barrel by the end of the trading day. This is probably how the market reacted to an interview with the President of Ukraine on ABC News, during which he expressed his readiness to refuse to join NATO and reach an agreement with Russia to end hostilities. However, investors remain concerned about economic uncertainties due to Russia's significant role as a resource provider. Prices for oil, natural gas and key commodities, including metals and grains, rose sharply, exacerbating pressure on companies and households that were already struggling due to a significant increase in inflation.
And, most likely, oil prices will continue to rise. In particular, on March 7, Russian Deputy Prime Minister Alexander Novak said that Europe would not be able to quickly replace Russian oil, and the market price for oil would reach $300 per barrel or higher. In this case, not only European consumers will suffer, for whom the price of energy carriers will soar, but also American ones.
The consequences of oil sanctions will shake up the entire global economy and affect all sectors, from oil and gas to consumer, economists say. Increased volatility in the oil market will persist, and prices could continue to rise to record highs if other Western countries join Washington's measures. Restricting oil imports from Russia will reduce the market supply by 4.3 million barrels per day, which cannot be quickly replaced by other sources of supply, oil market analysts say.
Meanwhile, Russia's military special operation in Ukraine continues. Even if it ends in a short time, the negative consequences for the entire global economy will persist for a long time to come.
Since the opening of today's trading day, oil futures quotes are growing. Thus, the price of Brent oil is trying to overcome the first important resistance level 112.63 (200-period moving average on the 1-hour chart). Given the estimates of economists and expectations of further price growth, aggressive buyers may enter the market from current levels. A more cautious position would be associated with purchases after the breakdown of the short-term resistance level of 118.48 (see Technical analysis and trading recommendations).
Today, market participants will closely follow the ECB press conference, which will begin at 13:30 (GMT), after the publication (at 12:45 GMT) of the ECB rate decision. Also of interest will be the publication at 13:30 (GMT) of consumer price indices in the US, which are a key indicator for assessing inflation and changing consumer preferences. According to the forecast for February, the Core CPI indices (excluding food and energy prices) rose by +0.5% and +6.4% (in annual terms), which indicates a strong increase in consumer inflation and is likely to have a positive impact on USD, because strengthen expectations for more aggressive measures from the Fed to curb inflation.
Participants of the oil market will pay attention to tomorrow's publication at 18:00 (GMT) of the report of oil service company Baker Hughes on active oil platforms in the US.
Previous data from Baker Hughes showed an increase in the number of active rigs to 519 units (vs. 522, 520, 516, 497, 495, 491, 481, 480, 475, 471, 467, 461, 450, 445, 433, 428, 421, 411, 401, 394, 410, 405, 397 in previous reporting periods). It is obvious that the number of oil producing companies in the US is growing again, which is a negative factor for oil prices. Their next growth will also have a negative impact on oil prices, however, it will only have a short-term character.
Oil production by OPEC+ countries remains below the set quotas, while events in Ukraine, through which large volumes of natural gas are supplied from Russia, a major producer of gas and oil, are driving up energy prices. Given the current situation, oil prices may accelerate their growth, even if the dollar further strengthens.