A couple of months ago we predicted the oil price behavior. The point is that the growth of quotations is explained, first of all, the presence of free money, there was speculative, and not quite correctly reflect the actual demand. In the oil market bubble was formed twice in a short time, and the question was - is there a possibility for the formation of the next, the third in a row bubble?
Since that time there have been several events, briefly go through them.
After a prolonged recession in the first half of the year, oil production in the US has stabilized, as producers responded positively to the rapid recovery of oil in recent months. Currently, production is at about 8.5 Mbarr. per day. At the same time in Cushing stocks are falling, indicating a lack of its own production due to lower imports.
EIA predicts oil production in 2017 at an average of 8.51 Mbarr level. per day, that is actually at current levels, but lower than the average level of production in 2016, which is estimated to be 8.77 Mbarr. per day.
whether the US manufacturers will be able to sustain this level? On this subject I have serious doubts. As of October 7 number of drilling rigs in the United States amounted to 524 units, or 27.14% from the peak reached in September 2014. This extremely low level, which does not allow to maintain production despite some pullback from a minimum of (404 pcs., In May 2016 g). Thus, the probability of falling production volumes remained relatively high, and it is - a bullish factor for oil.
You also need to note the active work of OPEC to restrict oil production. The possibility that by November cutback is agreed, rising, pushing up and quotes. We add that Russia is ready to work together with OPEC, as reported by the World Energy Congress rostrum by President Putin. His statement means chtodogovorennosti already been achieved, and this is certainly another bullish factor.
Add that in 2017 is expected to increase global demand for more than 1 Mbarr. per day, unless, of course, the world will cover the new wave of the crisis. Nevertheless, and the expectation of growth in demand - a bullish factor, and even rather cautious EIA monthly report published on Tuesday morning, was unable to provide quotes on the deterrent effect.
Thus, the oil increases. Does this mean that the chances of a third bubble is also growing? Yes, chances are there, but they have several different nature than thought. We will try to characterize exactly this reason, and then it becomes clear, what can you expect in the future and the oil, and of gold, and of course, the dollar.
In recent years, as the US Federal Reserve launched a program of quantitative easing (of QE), the relationship between oil prices and the volume of the monetary base (DB) has become pronounced, it is easy to trace the stages of deployment QE:
The first wave of QE (zones A and C) and led to an increase in oil break in the growth of the DB (zones B and D) and accompanied by growth arrest quotations. However, the third wave, the most ambitious (Zone E) has failed to lead to higher prices, the bubble has reached saturation, and with the termination of QE3 quotes flew down.
Thus, at first glance, the reduction of DB leads to a decrease in oil prices. However, in the last week of SB decreased by about 550 billion. USD., It is the figure fell as much St. Louis Source Base (orange line on the graph), which goes for about a week before the official publication of the Fed DB.
Perhaps the Fed's official rate will be slightly lower, but in any case, the compression of the Central Bank - the maximum in the history of the Fed's existence. It is, no doubt, lead to an increase in demand for the dollar and the increase in the dollar index (more on this below), but oil is not affected.
Since the beginning of the week the dollar consistently rising against all major world currencies, including the Canadian, who can not use the factor of rising in price of oil. Perhaps the Fed aims to cause a liquidity crisis? Or tighten creditors to restructure debt? It is unlikely that we will ever know, but the compression of DB record indicates that the Fed starts to some decisive steps, which will inevitably impact on the market in the near future.
We are waiting for the rally in the dollar, as well as the active movement on the market of raw materials, including gold. Dollar growth and should lead to a decrease in the cost of raw materials, but it is likely that these two processes will go at the same time, that is, the dollar index growth will be accompanied by rising gold and oil rising. This is the scenario that the Fed will try to avoid, but it is based on - the fundamental causes, which deal not so easy.
What are we talking about? This - in two parts.
According to the materials of Alpari