WTI crude is still holding support but the picture is looking increasingly bleak for Brent crude. The global benchmark closed today at its lowest level since December 2021.
We have seen a series of daily declines around these levels and there have been worse daily declines since 2021 but this is the lowest daily and weekly close. This is not a good sign.
Brent weekly
I think the physical picture is not that bad, as we have seen significant declines in US supply and declines in global inventories. I think the market is anticipating slower global growth and selling on that, as well as the potential for global oversupply in the first half of 2025.
I think it’s also worth looking at the monthly chart to highlight the tight range over the past two years. This suggests a managed market, which is exactly what OPEC has been doing. At the same time, it’s a reminder that OPEC has not been great at managing the market over the past 25 years.
This is also a reminder that the price of Brent crude has remained at the same level it was in 2006. But when we take inflation into account, the price of $71 per barrel in 2006 is $109.50 per barrel today.
Even going back to December 2021 alone, total inflation was 20.25%, which makes $71 equal to $85.
This highlights how low the price per barrel has fallen in real terms, largely due to the US shale revolution, but also underscores how hard it will be to make a profit on conventional oil from here on a global annual decline of 3% to 6%.
Moreover, adjusting gold’s July 2008 all-time high of $147.50 to the current dollar would yield $210.92 – an unimaginable sum.
The problem for oil bulls right now is that any additional selling opens up an ugly technical picture that could pave the way for a return to $60 a barrel and some uncomfortable decisions for producers.