Fears of a massive tightening of monetary policy by central banks, which could lead to a recession, have triggered a drop in Brent. Nevertheless, if a downturn in the global economy were to occur, it would not happen before the end of 2022. Meanwhile, thanks to the lifting of the lockdown in China, summer travels in the Northern Hemisphere and warmer weather in the Middle East, global oil demand remains strong. So there is no need to worry about a break in the North Sea's uptrend.

Recession has recently become one of the main topics. The Wall Street Journal puts its probability at 44% over the next 12 months, substantially higher than on the eve of the global recessions of 2007-2009 and 2022. Goldman Sachs expects a 30% probability and believes that the recession will be relatively shallow. It will primarily hit the labor market in the form of a 2.5pc rise in unemployment. During the previous recession, global oil demand sharply declined due to the pandemic, so investors' fears are understandable. Nevertheless, the situation is unlikely to repeat itself. The impact of the recession on demand is likely to be moderate.

However, the oil supply is not as rosy as the bulls would like it to be. Despite large-scale sanctions, Russia is not being squeezed out of the market. On the contrary, Moscow is increasing its export activity. Nineteen months later, it is back at the top of the list of oil suppliers to China, finally overtaking Saudi Arabia. In May, China's purchases of oil from Russia rose from 1.59m b/d to 1.98m b/d. A similar trend can be observed in Europe.

Despite the embargo, oil supplies from Russia to European refineries increased for the third week in a row, reaching 1.84m b/d. This is the highest level of shipments in two months. It is likely that buyers concerned about an imminent ban on Russian oil insurance on the tankers carrying it are increasing their activity.

Dynamics of Russian oil shipments by sea

The US is concerned that the insurance ban will drive up oil prices. That is why they are working on a plan to reduce Moscow's revenues. It is likely to focus on some kind of price ceiling in order to exclude tanker cargoes from the ban. Should the scheme succeed, Russia will not be squeezed out of the market, but its export revenues will decrease. For Brent, this means that the ceiling is almost reached. As a result, the North Sea grade could stabilize at current levels, with a further decline towards the end of the year amid an approaching recession.

Brent, daily chart

The failure of the Brent bears to consolidate below the bottom of the $113.9-124/bbl fair value range, where an important pivot level is also located, indicates weakness. As long as quotations remain above $114, the North Sea grades should be bought.