Author: Devika Krishna Kumar and David Gaffen
(Reuters) – The two-year oil market rally is facing one of its biggest tests for months, with more supply and growing concerns that the weakness of the economy will affect global demand.
After exceeding 75 and $ 85 a barrel a month ago, both Brent and West Texas Intermediate deal with the merciless wave of sales. Prices have been supported for some time by expectations that US sanctions against Iran will reduce supplies.
But last week, the three largest oil producers in the world – Russia, Saudi Arabia and the United States – reported that they are pumping at record levels or near their peaks. In addition, the United States has stated that it will allow some buyers to continue importing Iranian oil, which reduces the risk of limiting supplies.
These factors, combined with the recent weak data from the Chinese economy and other emerging markets, drew attention to the fear of surplus, postponing futures contracts on WTI at a minimum since April and disrupting the upward move.
For several months, the structure of the curve of futures contracts for crude oil in the United States pointed to the expectations of lower supply, but now the contracts suggest that investors are afraid of oversupply in the coming months.
"The volume of recent sales suggests that global demand is weaker than expected as a result of (dispute) tariffs, especially between the United States and China," said Jim Ritterbusch, president of Ritterbusch & Associates.
Among the speculators there was also an exodus. In the last two weeks, the bookmaker's betting has dropped to the weakest level in over a year. Sales accelerated sharply on Thursday after WTI futures fell below USD65 per barrel, which remained stable in recent summer and autumn liquidations.
The oil market has increased before re-imposing US sanctions against Iran this week, and fears that the supply of producers such as Saudi Arabia would not be able to fill the gap left by Tehran.
However, on Friday Washington said it would allow temporary redundancies for several countries to continue buying Iranian oil after Sunday when sanctions come into force.
But some analysts believe that the current liquidation went too far and very quickly. The main OPEC producers will not be able to increase their supplies if necessary, especially in the case of production deficits in Iran, Venezuela and Libya.
In the case of oil in the United States, the key area is from 64.45 to 64.80 dollars, the range in which prices have found support in the past, said Fawad Razaqzada, an analyst at Forex.com. If the contract fell below this point, "the path of least resistance would be a disadvantage," he said.
For Brent, Razaqzada sees the range between 69.50 and 69.60 USD. The analyst has estimated that if the benchmark falls from this episode, a much larger correction can be observed.
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GRAPH (in English): Production of raw Russia, USA and Saudi Arabia https://tmsnrt.rs/2CTwqaq
The United States allows eight "jurisdictions" to continue to buy Iranian oil [nL2N1XD0S2]
(Reportage by David Gaffen and Deviki Krishna Kumar in New York, published in Spanish by Janisse Huambachano)