Brent Crude Oil Surges, Reigniting a Retest of the Yearly High

[MongiIG]

BRENT CRUDE OIL NEWS AND ANALYSIS

• Declining crude stocks, stalled Iran Nuclear deal and Putin’s gas payment requirement sends oil higher
• OPEC + to meet on March 31st to set output targets for May
• Brent crude oil: technical levels to consider

 

BRENT CRUDE OIL PRICES CONTINUE IMPRESSIVE RUN

Brent crude oil trades higher today off the back of declining oil stock figures, the upcoming OPEC+ meeting and the overall boost to the energy sector resulting from Putin’s announcement to “unfriendly nations” that future gas purchases are to be paid for in Russian Rubles.

While Putin’s remarks mainly affected European natural gas prices, it appears to have buoyed the overall energy complex as gasoline, heating oil, natural gas and WTI and Brent crude oil all experiencing higher prices today.

OIL STOCKS SHOW A DRASTIC DECLINE AS DEMAND PUSHES ON

Yesterday, the Energy Information Agency (EIA) published its latest weekly petroleum status report, which covers data up until the 18th of March. Most notably, crude oil stocks witnessed a massive decline of 2.508 million barrels when stocks were forecast to see an increase of 0.114 million. US crude oil inventories currently stands at 413.4 million barrels and is 13% below the 5-year average for this time of the year.

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WHAT’S NEXT ON THE AGENDA FOR OIL?

Oil traders now turn their attention to the OPEC+ meeting on March the 31st where the group will discuss their output target for May. It is largely expected that the existing agreement to increase oil output by 400,000 barrels per day will go ahead as planned as this has been the case in previous meetings.

Recent meetings have been uncharacteristically brief in duration but this month’s agenda may require greater engagement amid large scale sanctions of Russian oil imports. OPEC+ has previously stated that the large price spikes should not be attributed to OPEC’s policies but is rather the result of fears of supply shortages.

In addition, the Iran Nuclear deal has stalled in recent weeks with little progress being reported. As such, the hope of a return of Iranian oil supply is likely to support current, elevated oil prices.

Brent Crude Oil Daily Chart

Source: TradingView, prepared by Richard Snow

Brent Crude oil prices pulled back extensively after reaching the recent high of around $139. A bounce off the 50 simple moving average along with the appearance of a morning star candle stick pattern lead the way for a bullish continuation.

A retest of $139 remains constructive above $113. Failure to trade above $113, opens the door to 97.20 as the next level of support.

 

--- Written by Richard Snow for DailyFX.com. 24th March 2022

[MongiIG]

Just now, MongiIG said:

OPEC + to meet on March 31st to set output targets for May

CRUDE OIL PRICE TALKING POINTS

The price of oil trades to a fresh weekly high ($115.40) amid an unexpected decline in US inventories, and crude may continue to retrace the decline from the yearly high ($130.50) if the Organization of Petroleum Exporting Countries (OPEC) stick to the current production schedule at the next Ministerial Meeting on March 31.

 

CRUDE OIL PRICE OUTLOOK HINGES ON OPEC MEETING

The price of oil appears to have reversed ahead of the 50-Day SMA ($95.32) as it extends the series of higher highs and lows carried over from last week, and current market conditions may keep crude prices afloat as data prints coming out of the US point to strong demand.

US stockpiles narrowed 2.508M in the week ending March 18 versus forecasts for a 0.114M rise, and the development largely align with the upbeat outlook entailed in OPEC’s most recent Monthly Oil Market Report (MOMR) as the update insists that “for the time being, world oil demand growth in 2022 remains unchanged at 4.2 mb/d, given the high uncertainty and extreme fluidity of developments in recent weeks.”

Indications of robust demand may encourage OPEC and its allies to retain the current production schedule with the group on track to “adjust upward the monthly overall production by 0.4 mb/d for the month of April 2022,” and the decline from the yearly high ($130.50) may turn out to be a correction in the broader trend as US production remains subdued.

A deeper look at the update from the Energy Information Administration (EIA) show weekly field production holding steady for seven consecutive weeks, with the figure printing at 11,600K in the week ending March 18, and more of the same from OPEC+ may ultimately lead to higher oil prices as the group retains a gradual approach in restoring production to pre-pandemic levels.

With that said, the price of oil may continue to carve a series of higher highs and lows ahead of the OPEC meeting as indications of stronger demand are met with signs of limited supply, and crude may stage another attempt to test the record high ($147.27) if the group shows little interest in responding to the Russia-Ukraine war.

CRUDE OIL PRICE DAILY CHART

Source: Trading View

• Keep in mind, the price of oil cleared the August 2008 high ($128.60) as it jumped to a fresh yearly high ($130.50) earlier this month, with the recent rally pushing the Relative Strength Index (RSI) into overbought territory for the fourth time in 2022.
• However, a textbook RSI sell signal emerged as the price of oil reversed ahead of the record high ($147.27), with crude snapping the opening range for March as it came up against the $93.50 (61.8% retracement) region.
• Nevertheless, the decline from the yearly high ($130.50) may turn out to be a correction in the broader trend as the price of oil bounces back ahead of the 50-Day SMA ($92.88), with the recent series of higher highs and lows pushing crude above the Fibonacci overlap around $112.80 (161.8% expansion) to $113.70 (78.6% expansion).
• Need a break/close above the $115.00 (23.6% retracement) handle to open up the $120.90 (100% region, with a move above the monthly high ($130.50) bringing the $141.50 (161.8% expansion) area on the radar.
• At the same time, failure to break/close above the $115.00 (23.6% retracement) handle may undermine the bullish price action in crude, with a move below the $108.10 (61.8% expansion) region opening up the $104.20 (50% expansion) area.

 

--- Written by David Song, Currency Strategist. 24th March 2022  | DailyFX