The oil market has dramatically changed. Millions of barrels are stranded at sea, China and India are afraid to buy Russian crude, and Moscow’s revenues are falling. All this is the result of Western sanctions. What will they lead to? Let’s discuss this topic and make a trading plan for Brent.
The article covers the following subjects:
Major Takeaways
- Russia’s oil and gas revenues are expected to decline by 35%.
- Urals is trading at its largest discount to Brent since 2023.
- Brent may plunge to $30 per barrel.
- Short trades can be opened on Brent with targets at $56.5 and below.
Monthly Fundamental Forecast for Oil
It takes two to tango. The oil market is not in a hurry to draw conclusions about Ukraine’s readiness to accept the US peace plan. Investors have repeatedly seen Russia back down, only to stick to its goals. This time, however, the conditions have changed. A new round of Western sanctions is driving down the price of Urals and reducing Moscow’s revenues. According to Reuters estimates, Russia’s oil and gas revenues will fall by 35% in November compared to the same period last year. Could it be time to make concessions?
Over the past few weeks, the oil market has evolved significantly. The price of major Russian crude grades is trading at its biggest discount relative to Brent since 2023. Ships loaded with sanctioned oil are drifting at sea. Major importers such as China and India are increasingly trying to buy crude elsewhere rather than from Moscow. All this is the result of secondary sanctions against businesses that trade with Russian firms. The goal is to force Russia to negotiate peace.
Urals–Brent Spread
Source: Wall Street Journal.
It is not certain that this plan will succeed. Therefore, Brent is not falling rapidly. The downward trend continues, but not as quickly as bears would like. Ready to close the fourth month in the red, Brent may surge sharply if the agreement between Moscow and Kiev derails. Meanwhile, bulls are benefiting from a revival of hopes for aggressive Fed easing and the associated decline in the US dollar.
Market Expectations for Fed Rate Cut
Source: Bloomberg.
The IEA spooked investors with a forecast of a record surplus of 4 million barrels per day in 2026. Deutsche Bank cites a figure that is half that amount, but even that is enough to encourage Brent bears to push the price lower. According to JP Morgan, without a significant reduction in production, Brent crude will likely collapse to $30 per barrel in 2027.
Such a scenario would appeal to Donald Trump, as it would lead to lower gasoline prices and slower US inflation. As a result, the door would be open for the Fed to lower interest rates. The only question is how quickly the US will lift sanctions against Russia in the event of peace in Ukraine. Perhaps it will only allow India and China to buy oil from Moscow freely.
Buyers of Russian Oil
Source: Bloomberg.
Monthly Trading Plan for Brent
At this point, several scenarios should be considered. Russia may refrain from signing a peace agreement, and imposed sanctions may damage its economy, forcing it to leave the oil market. Therefore, Brent may surge to $75 per barrel. On the other hand, Moscow and Kyiv may sign an agreement, and the US may lift all restrictions. Against this backdrop, Brent crude will fall to $50 per barrel. Eventually, it will maintain its downward trend as sanctions are lifted. However, Brent will unlikely reach the targets of $58.5 and $56.5.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
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