Brent Dampened by China’s COVID, OPEC+ & U.S. Data to Follow

BRENT CRUDE OIL (LCOc1) TALKING POINTS

• China’s COVID position deteriorates wounding crude prices.
• OPEC+ supply could be reduced further.
• Fed may look to reaffirm aggressive rate path to curb inflation.

BRENT CRUDE OIL FUNDAMENTAL BACKDROP

Brent crude oil followed the drop off across the broader commodity complex as Chinese COVID cases continue to surge hurting demand forecasts. Tighter restrictions are again plaguing oil markets and protest action could further limit oil upside. Considering recession fears around the globe, coupled with the weaker demand outlook via China, investor sentiment is slipping and is reflected by the significant reduction in long positioning on ICE Brent.

CFTC BRENT CRUDE OIL POSITIONING:

Source: Refinitiv

OPEC+ is set to meet on Sunday December 4th but there may be some introductory figures given to markets prior to the meeting. With prices on the decline, it is not impossible that OPEC+ cuts supply further than the prior 2MMbbls/d. Although there was mentioned about increasing volume last week, this rumor is unlikely in the current environment.

This week has quite a few high impact economic events that should give markets some key information to the Fed’s path forward including the all important core inflation statistic. Fed Chair Jerome Powell is also scheduled to speak and may well impose the hawkish narrative once more as financial conditions have eased over the last few weeks. The U.S. has seen an increase in mortgage application during that time and financial conditions are not conducive to the Fed’s fight against inflation. Other key releases include GDP, ISM manufacturing PMI’s and Non-Farm Payrolls (NFP).

ECONOMIC CALENDAR

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

BRENT CRUDE (LCOc1) DAILY CHART -UNDATED

Chart prepared by Warren Venketas, IG

Daily Brent crude price action has been pushing the Relative Strength Index (RSI) closer to oversold levels and may coincide with a bullish OPEC+ meeting. In the interim, there is scope for further weakness but this weeks movement will be highly dependent on fundamental data as outlined above.

Key resistance levels:

Key support levels:

IG CLIENT SENTIMENT: MIXED

IGCS shows retail traders are NET LONG on crude oil, with 83% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning we arrive at a short-term cautious bias.

Contact and followWarrenon Twitter:@WVenketas