The price of Brent crude oil has climbed to a new four-year high today. Oil prices shot higher and have remained elevated ever since trading began overnight in Asia with Brent hitting a high so far of more than $81.00 a barrel. It comes after a meeting of OPEC and non-OPEC oil ministers in Algiers over the weekend, which concluded with a decision that there is no urgent need to boost crude output.
Clearly some speculators had expected the world’s biggest oil producers to potentially raise crude production levels after US President Donald Trump’s rant in a tweet last week, demanding that the OPEC should be trying to bring down oil prices. So, it is reasonable to assume that some speculators had established significant short positions around the then $80 resistance level ahead of the meeting. But when the OPEC and its allies refused to do what Trump had demanded, those short bets had to be abandoned quickly, causing prices to spike to a new four-year peak.
With Brent breaking out from its previous consolidation range to a new multi-year high, clearly the current trend is bullish and it could be gaining momentum. Thus, in the short-term we could see the dips being supported and for prices to gain further ground. In other words, the path of least resistance is currently to the upside.
Key support comes in around the old resistance range between $80.00 and $80.50. Near-term resistance could be around the upcoming round handles such as $82.00, $83.00 etc. and Fibonacci extension levels, such as $83.20/5 – this being the 127.2% extension of the downswing from mid-May.
We would only turn bearish on oil in the event prices go back to within their existing range with a clear signal that the bulls are trapped. Thus, a break below $78.25 – the last low pre breakout – would be the confirmation we would look for a bearish reversal. Alternatively, Brent oil may create a distinct reversal pattern at higher levels first.