Oil, which has been continuously growing over the past few months, began to consolidate in January amid investors' doubts about the old drivers and the strengthening of the US dollar. The relentless pandemic and slow vaccination scare the Brent and WTI bulls. If at the end of 2020 they were betting on a combination of rapid growth in global demand led by China and a reduction in OPEC + production, then at the beginning of 2021 the effectiveness of the first trump card is being questioned. If a number of the world's largest economies continue to be in lockdown conditions and face a double-dip recession because of this, what kind of rapid recovery in global consumption of black gold can we talk about?

China has long been considered the country that defeated the pandemic, which allowed its GDP to expand by 2.3% at the end of last year. Nevertheless, the outbreak of the epidemic, which has blocked about 23 million people, can be a blow to the economy. Especially if this number increases. It is expected that about 1.7 billion trips will take place in China during the Lunar New Year. This is 40% less than in 2019, but 15% more than in 2020. Travelers have a high demand for gasoline and other petroleum products, which has a positive impact on the global demand for black gold.

Dynamics of daily passenger traffic in China

Oil is facing problems not only because of China. Slow vaccination in Europe is forcing changes in plans to exit the lockdown and the rapid growth of the eurozone economy. This negatively affects the euro and allows the bulls on the USD index to launch a counterattack. Brent and WTI are quoted in dollars, so the strengthening of the US currency is holding back their buyers.

It seems that oil can only rely on producers' loyalty. The strikes in Libya will slow down the recovery of oil production in this country. The fact that Russia, which has announced a 20% reduction in Urals oil exports in January and February, will do so. The fact that Iraq, which did not fulfill its obligations to cut production in 2020, will indeed reduce its own production from 3.85 million barrels per day in December to the declared 3.6 million barrels per day during the first two months of the year.

Dynamics of oil production in Iraq

On the other hand, American oil companies that have started to work with profit are tempted to expand their own production, rather than use the money received to pay off credit debts.

Thus, a stronger US dollar and doubts about the rapid growth of global oil demand create prerequisites, at least for the consolidation of Brent and WTI. I do not rule out the development of a corrective movement of the North Sea variety in the direction of $53.8, $52.5, and $51.7. The rebound from these support levels can be a reason to open long positions.

Technically, in the short term, Brent can be sold on the breakout of the $54.8 pivot level. However, the targets should be moderate: the strength of the upward trend is not in doubt, and the bulls can resume attacks at any moment in the hope of pushing quotes to the target level of 261.8% according to the AB=CD pattern.

Brent daily chart