FxWirePro: Brent might drop towards $38/barrel area

Gains over Paris attack and increased bombing raid might prove limited in crude oil as supply surplus remains too large. Brent, global benchmark of North Sea, might soon resume its downtrend.

According to latest estimate, in spite of an increase in demand by 1.8 million barrels/day, this year surplus is still around 2 million barrels/day. So without significant production cut or supply disruption it is unlikely that the market fall into balance and tilt towards shortage.

Moreover any such disruption or supply cut has to be for longer term, something not to be solved by few days or weeks. Key reason for that is inventory, which is standing at record around 3 billion barrels and that is something really out of balance and may not drop to normal levels until many months.

In the above context, we feel any upside in Brent would be short term and limited and Brent to continue its drop and fall towards $38/barrel.

However current price action suggests, there might be some congestion in the near term.