Brent chart points to possible correction for crude oil

Crude oil prices managed to recover some of their losses made in the immediate aftermath of EIA’s weekly crude inventories report which showed an unexpected build.

Both Brent and WTI oil contracts remain near the multi-year highs they have hit recently.

Oil prices have been supported by reduced crude output from the OPEC and the fact that US crude inventories have been falling of late.

But today I wanted to highlight technical factors rather than fundamentals as the chart of Brent looks quite interesting.

As can be seen, Brent has now had two unsuccessful attempts to hold above the $80 handle, each time faltering at just shy of $80.50. The repeated failure here has left behind a potential double top reversal pattern, which would be confirmed on a clean break below the neckline around $77.70.

Also supporting the bearish case here are the facts that the rally has been rejected at the top of the bullish channel and that the momentum indicator RSI has just created a negative divergence at overbought levels of above 70.00.

However the bulls would argue that such reversal-looking patterns continue to fail to work against a strong fundamental backdrop, with OPEC producing less oil than agreed and sanctions on Iran point to further declines in OPEC production. 

Figure 1: