Everything flows, everything changes. The oil market has not escaped this fate either. Concerns about a sharp decline in production due to the displacement of Russia have faded into the background, and the growth in global demand has not been as impressive as previously thought. Moreover, fears due to the approaching recession in the global economy make it even lower. As a result, Brent returned to the levels reached before the armed conflict in Ukraine, and this is far from the limit.

Investors were scared of everything: the embargo on Russian oil, the ban on cargo insurance—however, sea exports from the Russian Federation remain at a stable level of 3.5 million b/d. The United States and its allies are running around with the naive idea of setting a price ceiling and are negotiating with China and other states on this subject, but the precedent of Russia cutting off gas to Europe suggests that all this mouse fuss does not make sense. If someone starts using the price ceiling, Moscow will turn off the taps, leading to the resumption of the Brent rally. Nobody wants that. Specially the European Union, which is already teetering on the brink of recession due to the gas crisis.

Curiously, it is blue fuel that is currently almost the only support for oil. It soared by a quarter after Russia reduced supplies via Nord Stream to 20% of its capacity. Current gas price levels are equivalent to $380 per barrel for oil. They force the use of oil products as a substitute, which supports demand and keeps backwardation in the market. However, its "bullish" conjuncture has recently worsened sharply: the difference between nearby futures contracts has decreased from $6 to $2 per barrel. No matter how Brent goes to contango and into the territory of the "bears."

Brent dynamics and backwardation in the oil market

Meanwhile, while Russia maintains stable supplies, other countries are actively increasing them. In particular, Libyan production and exports resumed, while supplies from Saudi Arabia increased from 6.6 million b/d to 7.5 million b/d in July, the highest level since April 2020.

Rising supply amid concerns about global demand due to the recession is pushing Brent quotes down. US GDP data showed that the country is already in a technical recession, while the slowdown in business activity in North America, Europe, and Asia clearly hints at the problems of the global economy. How can oil not fall in such conditions?

Technically, on the daily Brent chart, the failure of the North Sea variety to break above $108 per barrel and activate the Wolfe Wave reversal pattern indicates bullish weakness. A necessary condition for the recovery of the upward trend is a breakout of the diagonal resistance 2–4 in the area of $108–109. Until prices return to these levels, the bears will continue to control the situation on the market. In this regard, the rebound from the resistance at $102.4 and $105.2 per barrel should be used for selling.