Crude Oil Outlook: Brent Teases Bears at Elevated Prices

Brent crude oil prices have pulled back from recent highs as traders reassess Middle East risks and rising bearish momentum. Yet with inflation pressures elevated and the Strait of Hormuz remaining a key geopolitical flashpoint, dips may continue to attract buyers despite the recent correction.

 

View related analysis:

• How to Read the COT Report to Track Forex Market Sentiment
• US Dollar Momentum Reverses, Case for Yen Longs Rises | COT Report
• US Dollar Rebound Falters, But May Seasonality Remains Supportive
• Gold and Silver Outlook: Bearish Reversals Signal Further Downside
• US Dollar Outlook: Bullish May Seasonality Meets Volatility Risk

 

Brent Crude Oil Outlook: Elevated Prices Keep Bulls Interested

Elevated Oil Prices Keep Inflation Risks Alive

With crude oil prices having risen towards $80 per barrel since Friday’s close ahead of the US-Iran war, it is fair to say oil prices — and therefore inflationary pressures — are elevated. And as we approach a third consecutive month of elevated oil prices, we should now begin to see second-order effects seep through supply chains and the broader economy. The Fed is openly discussing hikes both publicly and within the latest meeting minutes, while Fed funds futures now imply a 41% probability of another hike arriving by next March. Though that strikes me as too far out for Fed action unless we see a material drop in crude oil prices imminently.

Strait of Hormuz Headlines Limit Crude Oil Downside Potential

We’ve seen a mixture of headlines surrounding the Middle East, ranging from imminent attacks to deals falling through. While China has called for de-escalation and blamed US-Israeli military action for disrupting the Strait of Hormuz, traders are also weighing signs that Iran is exerting greater control over approved transit routes through the Strait — limiting the bearish potential for crude oil unless a broader reopening materialises.

So unless we’re treated to a ceasefire, or the Strait is fully reopened, higher oil prices seem likely to persist. That means dips are likely to be bought, keeping crude oil within a choppy yet elevated range. That said, momentum is pointing lower, which could favour a near-term pullback before buyers step back in.

 

 

 

Crude Oil Futures (CL) Technical Analysis

Brent Crude Futures Eye $100 Support as Bearish Momentum Builds

Momentum clearly turned lower for Brent crude on Wednesday, with its -5.6% decline marking the most bearish session in two weeks. This also confirmed Monday’s high as a lower high relative to the May peak around 115. With daily volumes picking up as prices fall, bears are clearly reloading.

100 appears to be a logical downside target, with the monthly pivot point (101.79) nearby as an additional support level. It also seems a plausible area for a near-term bounce, as traders will likely book profits around such a major psychological level. However, a break beneath 100 exposes the swing low around 96. Still, without a resolution in the Middle East, I suspect bulls will view any dips towards 90 as attractive buying opportunities to drive prices back within their choppy yet elevated range.

Source: TradingView

 

Brent Crude 1-Hour: Rebound Looks Corrective Beneath Key Resistance

The 1-hour chart shows crude oil is trying to recover from its 104 low, though the magnitude of bearish momentum that saw prices fall suggests the current rise is a retracement. Also note that lack of volumes during the rise, further hinting that bears retain control. A shooting star candle has formed beneath the 106.87 low and weekly pivot point, which suggest a swing high could be near.

Source: TradingView

 

 

Brent Crude Oil Futures Positioning | COT Report

While prices have remained elevated, net-long exposure to Brent crude has been gradually declining in recent weeks. Large speculators now hold a net-long exposure of 169.9k contracts, near a three-month low. We have also seen gross longs among large speculators and managed funds ease over this period, while gross shorts have picked up. If anything, this supports the view that traders believe the worst of the war may now be behind us. However, for there to be any lasting hope of lower oil prices, we would likely need to see longs unwind at a faster pace alongside a sharper build-up in short exposure. And in the current climate, that still seems unlikely.

Source: TradingView

 

View the full economic calendar

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge