Previously, Brent bears could rely on factors such as Chinese imports, rising US production and exports, ample global inventories, and alternative supply routes that reduced dependence on Saudi Arabia. Today, however, the effectiveness of these stabilizing forces is increasingly in doubt. Let’s examine the key drivers and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- Global reserves have fallen to critical levels.
- The alternative route from Riyadh is blocked.
- Geopolitical factors continue to push oil prices higher.
- Long positions on Brent can be opened with targets of $99 and $104.
Weekly Fundamental Forecast for Oil
No matter how strong the oil market stabilizers may seem, a reduction in supply was bound to lead to rising prices sooner or later, and the recent surge in Brent above $95 per barrel proved it. At the same time, more and more banks are predicting that Brent will settle above $100 if the conflict in the Middle East drags on for at least another two weeks. Goldman Sachs is predicting a whopping $120.
Somewhere along the line, investors have seen this all before. Right at the start of the attacks on Iran, there were numerous warnings of an impending apocalypse—specifically, that Brent would soar to $150 or even $200 per barrel, which would deal a fatal blow to the global economy. In fact, numerous stabilizing factors came into play, preventing oil prices from reaching record highs.
China’s Oil Imports
Source: Reuters.
First and foremost, the decline in Chinese imports to 10-year lows stands out. The US increased production to a record 13.93 million bpd and began exporting crude oil at the highest volumes in history. According to the IEA, the strategic reserves of OECD countries fell by 290 million barrels following the March 11 decision to release them. Finally, Saudi Arabia found an alternative route to the Strait of Hormuz and increased shipments to a record 5.9 million bpd.
US Strategic Petroleum Reserve
Source: Reuters.
Unfortunately for Brent bears, their latest advantage has been neutralized by the Houthis, whose actions have disrupted Saudi oil exports through the Red Sea. The impact of weaker Chinese imports is already largely priced in, while existing infrastructure limits the pace at which the US can expand production and exports. Meanwhile, global oil inventories have fallen to critically low levels, prompting Morgan Stanley to warn that the margin for error in US-Iran relations has severely narrowed.
Speculators have been quick to adjust to the changing environment. During the week ending July 14, they increased their net long positions in Brent at the fastest pace in six months. Even so, after previously cutting bullish bets to their lowest level since 2026, positioning remains well below the six-year highs reached in March.
Speculative Positions on Brent
Source: Bloomberg.
As long as hostilities in the Middle East persist, the oil market is likely to remain bullish. Even positive developments, such as reports of potential peace talks, may slow Brent’s advance but are unlikely to reverse the uptrend. That is especially true if the Houthis follow through on threats to disrupt shipping through the Bab al-Mandeb Strait.
Weekly Trading Plan for Brent
Brent crude is clearly in an uptrend, with targets for long positions being reached rapidly. In this environment, the rally may extend toward $99 and $104 per barrel. Pullbacks could provide opportunities to open or increase long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
