Giles Coghlan LLB, Lth, MA
Financial Source
To start the year, analysts were optimistic about oil prices. China’s recovery from Covid was expected to boost demand, supply was expected to tighten in the second half of the year, and when Russia sent troops into Ukraine the sanctions imposed on them were expected to further reduce oil supply. However, China’s recovery was slower than expected, inventory levels have only just started to fall now, seasonals played out weakly, and sanctions on Russia only had a limited impact on reducing supply. All this meant that oil has continually been flirting with key support on the monthly chart marked below.
The monthly support has been held and oil has found a steady level now after the latest OPEC+ meeting. In the meeting, Saudi Energy Minister said OPEC+ will do “whatever is necessary” to support the market. Further news of production cuts from Saudi and Russia helped to underpin the oil market last week. Some analysts are also noting that the cost of storing oil has now increased and this could mean that firms now have an incentive for oil stockpiles to fall. In principle, this could now boost oil prices. So, is the bottom now in for oil prices, or will further fall still occur?
Daily technical picture
On the daily chart, oil has moved above a key potential trend line marked below.
Oil bulls will need to see the price stay above this level to keep the bullish picture alive. Note too, the 100 and 200 daily EMA’s on the chart as key resistance levels that still sit overhead. The big global narratives are still uncertain with inflation still proving tricky for central banks to manage. So, can oil bottom here? Can risk be easily defined underneath this key daily trend line? Or should a wider stop be used underneath $64? The outlook for oil is uncertain and managing risk will remain key for oil bulls moving forward.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.