Brent Crude Remains Under Pressure Despite Positive Open

BRENT CRUDE OIL (LCOc1) ANALYSIS

  • Markets await details around IEA stock release.
  • Yemen truce holds off supply concerns.
  • Shanghai lockdown stifles demand forecasts.

CRUDE OIL FUNDAMENTAL BACKDROP

Brent crude remains above the psychological $100/barrel level with the aid of a slightly weaker U.S. dollar this morning. Last week Friday, the International Energy Agency (IEA) announced that its member states would contribute to another synchronized oil release to ease tight market conditions. This extended crude oil losses only a day after the U.S. declared its intentions to release 180MMbbls from its SPR.

Particulars of the IEA release are much anticipated by markets and could give bears additional impetus to weigh on crude prices. Markets have largely stayed indifferent to the IEA news until more clarity is provided. Relief from the supply side comes in the form of a truce between the UAE and the Houthi group to stop military activity on the Saudi-Yemen border.

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Demand side changes via lockdowns in China (most recently Shanghai) have also lowered oil forecasts as the nation continues to adopt a ‘zero tolerance’ policy.

TECHNICAL ANALYSIS

BRENT CRUDE (LCOc1)DAILY CHART

Chart prepared by Warren Venketas, IG

Hesitancy after last weeks sharp drop is evident from the small candle prints including Friday’s doji. This is reinforced by the Relative Strength Index (RSI)hovering around the midpoint 50 mark that favours neither bullish nor bearish momentum. Recent price action resembles a descending wedge with the horizontal support (red) and downward sloping trending (black) making up the pattern. Traditionally, the descending triangle points to downside continuation with a preceding downtrend however, brent crude displays a preceding uptrend leading into the descending triangle. Regardless, a breakout below triangle support could spark a further move lower.

Key resistance levels:

  • $120.50
  • Triangle resistance (black)
  • $109.03/20-day EMA (purple)
  • 50-day EMA (blue)

Key support levels:

IG CLIENT SENTIMENT BEARISH

IGCS shows retail traders are marginally NET LONG on Crude Oil, with 55% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside bias.

Contact and follow Warren on Twitter: @WVenketas

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