Intervention in crude oil market: reasons, results and perspectives

The global market of crude oil recovered to its high created 2 weeks ago. Consequently, the recent intervention in the market (advertized by the Western media and the IEA) failed. What is it: the IEA’s unprecedented failure or somebody’s game and good reckoning? If we find the answer to this question we can understand the market perspectives.

 

 

 

 

IEA on the necessity of taking urgent steps

According to Masterforex-V Academy, the IEA - the world’s biggest union of oil-importing countries – said in late June that it was necessary to “pour” into the market considerable amounts of crude oil:

·         The official reason for the IEA’s market intervention: The step was taken in order to make up for the daily lack of oil (at least 1.5M barrels a day) caused by the continuous civil war in Libya.

·         The true reason: The importers were displeased with continuously growing prices. To their minds, overpriced oil makes the slow pace of global economic recovery even slower while an intervention (as a forced measure) will probably make the prices decline.

·         The pretext and the amount: In May the IEA countries announced about their decision to pour in the global market 60M barrels of oil from their reserves. However, the starting point was the OPEC’s refusal to raise its oil production quota.

·         The participants are the USA, Japan, Germany, France, Spain and Italy.China’s stance is still unknown.The US promised to allocate 50% of the amount, Europe – 30%, Asia (probably Japan alone) – 20%.

·         What kind of oil was poured into the market? It was high-quality Brent oil.

·         Instant results: The next day after the intervention was announced the Brent futures lost 7% of their value reaching $107/b. The quotes kept declining and reached 105/b. Later the downswing stopped and within 11 days the price completely recovered.

July’s Light Sweet Crude futures contract continues its mid-term downswing. The experts of the Department of Masterforex-V TS explain that after the MF pivot and sloping channel were broken the ABC retracement of Daily1 against the long-term uptrend was completed. There is a potential reversal upswing developing along the major trend. A “moment of truth” against the upswing followed by a bullish FZR will confirm the market’s desire to update May’s high at $114,83/b. If the upward scenario is canceled the “Hound of the Baskervilles” pattern by Elder /MF will continue the retracement. The wave level will get bigger than Daily 1. In this case the closest support will be moved to $89,57/b.

 

 

 

 

Did the IEA manage to reach the goals?

According to the US-Canadian Association of Trader and Investors under Masterforex-V Academy, it is necessary to pay attention to the following factors:

Skeptics’ viewpoint: Numerous experts say the IEA failed to reach the goals as the prices recovered after a short-term decline.Moreover, there is no way to avoid the global deficit of crude oil because sooner or later the importers will have to buy back the oil in order to replenish their reserves.

Optimists’ standpoint: the representatives of most oil-importing countries (the participants of the market intervention) consider the measure to be a success because they managed:

·         to defend the interests of oil refineries by reducing the price gap between different types of crude oil

·         to prevent the deficit of crude oil for the current season

Opposing skeptics’ viewpoint, the IEA experts say that the price change cannot prove or disprove how successful the intervention is.

Why did the intervention fail? What to expect in the global market of crude oil?

This year the daily consumption of crude oil around the world has been growing fast since 2004, hitting the record of 87,9M barrels a day. That is why the IEA’s intervention isn’t considered an effective solution.

·         A market intervention is an extreme measure. The history of the IEA counts only 3 interventions: in 1991 during Operation Desert Storm, in 2005 after the devastating Hurricane Katrina, which paralyzed the entire oil production in the Gulf of Mexico, and in June 2011 when the OPEC refused to raise production quota. The IEA hopes that this measure will help them to hold on until December’s OPEC summit. Apparently, at first the big-scale players treated the intervention as an extreme measure but then restored the price level.  

·         Most OPEC members (except Saudi Arabia and its allies) were irritated with the IEA’s intervention. As there was no decision on quota made during the latest summit, it means that until the next meeting any OPEC member can reduce the volume of oil production, which cannot but support the rally in the global market of crude oil.

Most experts assume that the near future of the global oil market will depend on whether the IEA will manage to make the OPEC members raise their production quota.

Market Leader and Masterforex-V Academy would be very grateful to you for participating in a survey. Please, visit the Academy’s forum and answer the question given below:

Can the IEA’s intervention be considered a success?

·         Yes, it can bring positive results

·         No, it cannot

·         Your own variant

 

 

 

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