Brent forecast for 17.08.2020

August 17, 2020

Brent forecast: Oil has been trading in the corridor for too longDmitri Demidenko

Oil price fundamental forecast for today

The longer lasts consolidation, the more likely is the trend to

start

The longer consolidation lasts, the more likely is the trend start

Beginner traders like to join strong trends. Experienced traders know that it is more beneficial to monitor the assets that have been trading flat for a long time. The consolidation period will end sooner or later, being followed by new trends. The longer is the market trading in a narrow range, the more chances are that a sharp movement should start. With this regard, oil is quite a promising asset.

At first sight, the oil market should be moving down. The OPEC+ is gradually increasing oil production, international organizations lower their forecasts for oil global demand amid the difficult epidemiological situation in the US and the world. Besides, judging by the past experience, the US oil producers should be increasing the output as the prices grow. Unfortunately for the oil bears, the oil price is not falling. It is a reason to think that, if the market doesn’t go where it should, it is likely to go in the opposite direction.

To the surprise of many investors, the United States is the main reason for optimism. According to Baker Hughes data, the number of the US oil rig has dropped to the lowest level since 2005. It is the leading indicator of US oil production. According to The U.S. Energy Information Administration (EIA) forecasts, the US crude oil production will be 11.26 million barrels per day in 2020. It is far less than the production before the pandemic.

Dynamics of US rig count

![LiteForex: Brent forecast for 17.08.2020][1]

Source: Bloomberg.

Dynamics of US crude oil production

![LiteForex: Brent forecast for 17.08.2020][2]

Source: Bloomberg.

The US oil-producing companies have changed the strategy. Earlier, they increased crude oil production as the prices grew. Now, they prefer to pay off debts.

In addition to a decline in the US crude oil output, the US demand for oil and liquid fuels is surprisingly high (U.S. crude oil stocks are declining for the third consecutive week). Besides, the US dollar is weak. So, it is clear now why the tailwinds for oil are blowing from the USA.

As for the global demand, one shouldn’t fear the decline in the demand forecasts by the OPEC to 90.6 million barrels per day, and the IEA - to 91.9 million barrels per day. Both organizations take into account the growth in the number of COVID-19 cases in the USA. However, according to US domestic data, the US economy can adjust to it. Furthermore, once there had been reported that China is going to boost the purchases of the US energy products in the August-September period to meet the targets of the phase one trade deal, and the oil price immediately started growing.

In my opinion, the long-term outlook for the oil market is bullish. Sooner or later, the global economy will rebound, especially if there are coronavirus vaccines. The oil global demand will be also growing as the economy is recovering. As for global oil supply, even if the OPEC+ has increased crude oil production, it is far from the pre-crisis levels. Moreover, the US oil producers are out of the game. So, I recommend holding up the [UKBrent][3] longs entered at [level $44 a barrel][4].

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Price chart of UKBrent in real time mode

![Brent forecast: Oil has been trading in the corridor for too long][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. 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 2004/39/EC.

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