Oil is back in bearish cycle

Oil on both sides of the Atlantic officially back to the “bear” cycle (bear market) — a situation when the asset price falls to 20% relative to the recent peak. During trading on Friday, oil futures for Brent on London exchange ICE became cheaper to $41,83 per barrel, which is 20.3% below the peak in 2016 at $52,51, recorded in early June. American WTI crude oil fell today to $40,57 per barrel — a drop of nearly 21% compared to the June high.

Last time before that, Brent and WTI slid into a “bear market” a year ago, at the end of July 2015. Ultimately this led to the fact that oil prices fell to $26-27/bbl. at the beginning of 2016. After that, it started a price rally that has lifted oil prices above $50 by the end of may. During this period, analysts of investment banks, the International energy Agency (IEA) and the OPEC officials in one voice declared that the slowdown of oil production in the U.S. and disruptions in production and exports in countries such as Canada, Nigeria and Venezuela, will finally put an end to pripremljene on the world oil market.

However, these predictions proved to be premature: a global oil surplus is being spent slowly, stocks of oil and oil products in OECD countries remain at a record level of more than 3 billion barrels, according to IEA. In the USA, the world’s largest consumer of gasoline — there is a “shift from the excess crude oil to excess oil products”, stated in an interview with Bloomberg TV this week, the head of research of commodity markets Goldman Sachs Jeff Currie. Gasoline inventories are at historic highs in a number of regions of the United States, and this has led to fears that oil demand from refineries will be less.

Another factor of pressure on oil prices — speculators who re-started play in the fall. Hedge funds and other financial players in recent weeks eliminate old long positions in oil futures and options on Brent and WTI, and replace them with fresh short positions, which partly explains the decrease in oil prices