More than 20 dollars of difference have come to be between the maximum value of the Brent quoted this year and the price of crude at the beginning of 2018. A totally bullish trend that brought oil to the brink of 90 $USD/bbl just two weeks ago.

Reasons for its justification have not been lacking: a rising demand after a global economic recovery, Venezuelan oil production sinks to historic highs, Saudi Arabia and Russia accompany OPEC in balancing the world supply and demand of crude, and on top of that, the US comes out of a nuclear agreement that puts Iranian exports in check.

We have welcomed a new month with unstable Brent behavior, hitting highs since October 2014 and then falling more than 6 dollars in a week. And it is here where the key question is born, breaking the most obvious scenario currently imaginable in oil, could a bearish trend arrive?


Two of the world’s largest oil producers are key players in this strategy game. They changed their austere role and have begun to increase their production, bringing between them one million barrels per day more to the market.

All this goes back to September, before the OPEC meeting in Algiers, in which both countries decided to put a cap on the US and alleviate the price of fuels before Trump’s mid-term elections.

During the month of September it has been known that Russia has increased its production by nearly 2%, registering a quota of 11.36 mbpd. Saudi Arabia, for its part, increased production by 50,000 bpd that month to 10.53 mbpd.

Although they may seem small figures, it must be considered that this was agreed before the meeting in Algiers on 21 September, so the room for manoeuvre to increase production has been very tight. Hence, the constant claims of both countries to be able to provide the market with a greater supply of crude oil if necessary.


The country that has made the most effort to halt an upward trend in crude oil following the agreement to cut OPEC and other non-members, seems to be beginning to collect its profits after two years of considerable increase in its oil production.

Over the past 24 months it has managed to increase production by 32.5% to the 11.2 mbpd confirmed by the EIA on October 5, a share that has never come close in the last 35 years.

At the same time, American production seems to be booming with two consecutive weeks of strong increases in crude oil inventories, returning to 400 million barrels inventoried. In the last two weeks alone, stocks have increased by 13.9 million barrels.

In addition, America First tireless policy of rewarding with low fuel prices the states where it received the most votes (Texas and North Dakota, among others) now takes much more thrust with the “alliance” of Russia and Saudi Arabia.


Possibly the player that nobody expected in the presented scenario, but that without a doubt can become one of the great protagonists. Since US and EU sanctions were lifted in 2016 after reducing its nuclear programme, Iran has produced close to maximum levels not seen since the 1980s.

The new imminent sanctions by the US against the country in the Persian Gulf have had an effect on production in the month of September, which can be seen as they reduced their extraction by 1.33% to 3.755 mbpd.

The US intention with the new sanctions is for Iran’s exports to be reduced to 1 mbpd. To this end, buyers are being forced to reduce their imports or they could be excluded from the US financial system.

Iran does not make it easy, since despite the difficulties it is having in insuring its shipments by international insurers, it is basing its strategy on a policy of low prices not seen in the last 14 years.


Despite the possible problems their customers might have, there are some countries that ignore Trump’s blackmail and show themselves on Iran’s side:

  • China. He said he would not increase his purchases, but at the same time he rejected the US’s request to cut back on its imports. In turn, this situation has given China the opportunity to take the initiative in a project to develop Iran’s largest gas field through the state company China National Petroleum Corp., so both countries win in this situation
  • India. The Iranian Minister of Foreign Affairs has already confirmed after a meeting with his Indian counterpart that they would continue with the same purchase conditions as until now. Iran is currently India’s third largest customer.
  • Japan. Japanese refineries are forcing the government to hold talks about their involvement in Iran’s sanctions. The Japanese about 125 kbpd.

Anyway, the US will not throw stones on its own roof, since an abusive reduction of Iran’s exports would mean a decrease in the supply of more than 3 Mbpd and a clear situation that crude oil prices resume the 100 $USD/bbl, which is not in the interest of the American Republican. That is why it has held talks with Saudi Arabia, as long as it replaces the gap left by the Iranians.


The big question and nobody knows his answer. What is obvious is that throughout the month of October the possibility of seeing a downward trend begins to be drawn under a 2018 upward trend in which crude oil has gained 30%.

It is evident that there are weighty factors on each side of the balance, something that until a few months ago there was only one on the downside: the growing U.S. production. In spite of all this, the production of crude oil in Venzuela, which in August reached 1.23 Mbpd, continues to be a cause for concern, which translates into a decrease of 59% in the last year.

There are many open fronts and a possible combination of bearish and bullish factors that do not determine a single scenario. Although good, from November onwards it will be possible to know the firmness of some countries that currently support the continued purchase of Iran in the face of threats from the US.

It will be the first milestone that will lead to a path: Bassist or Bullish? Make your bets.

Adrián Gil | Energy Consultant


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