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🛢️ OPEC and oil from the reserve will not help: what backwardation says⠀
👉 Temperature of conflict in the commodity market is not decreasing. Recall: IEA member countries have decided to put on the market 60 million barrels of reserves in addition to 180 million barrels of US reserves. This is an unprecedented move to correct market in the face of political sanctions and new COVID restrictions.
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IEA expects Russian oil production to fall by 25-30% in April, meaning an imbalance of about 3 million bрd is a real threat. And subsidies from the reserve can only partially compensate for this deficit.
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Alas, the world Cartel is in no hurry to flood Europe with its oil. According to Reuters, OPEC Secretary General Mohammed Barkindo believes that sanctions could create the most serious crisis in oil supplies since it is impossible to replace Russian oil. The official said that OPEC does not intend to increase supplies to this region yet.
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European buyers are already trying to get around sanctions with the old scheme − buying a certain oil «mixture» in which «politically problematic» raw materials are only partially present. Shell is already offering a new «latvian blend»: as long as 50.01% of each barrel comes from other sources, such oil is technically not considered Russian.
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Futures backwardation persists on the market, that is, a situation where contracts with an expiration date nearer are traded more expensive than contracts with a more distant expiration date. According to the standard logic, it should be the other way around: storing physical oil costs money, and the more time remains until the end of contract and delivery of goods, the more expensive futures are.
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For us, the current backwardation is an excellent signal that demand in oil market still exceeds supply. So the new reversal to the highs is not cancelled.
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Profits to y’all!