Brent crude oil’s recovery above $100 a barrel is intensifying inflation concerns and adding to upward pressure on bond yields. With depleted inventories supporting the case for sustained replenishment demand, the long-term crude oil forecast remains tilted to the upside. In the short-term, it would take some positive developments towards a potential US-Iran deal to bring some relief. Otherwise, oil prices could simply continue higher.
Watch: Crude oil rises back above $100
Brent’s reversal keeps inflation concerns alive
Brent crude oil has bounced back after falling around 3% yesterday, with the recovery carrying prices into positive territory by the end of the session. That reversal produced a hammer candle rather than the sustained decline that had initially appeared possible. The rebound leaves oil applying renewed pressure to an already difficult inflation backdrop.
Government bond yields are rising across markets as investors price in the possibility that interest rates could increase further. Higher crude prices are partly behind those concerns. Therefore, the oil recovery matters beyond the energy market itself, with the rise in yields also helping to undermine gold in the short term.
A US-Iran deal may offer only partial relief
A deal between the US and Iran would be needed for crude oil prices to fall sharply. Without progress, the risk remains that oil extends its gains in the days and weeks ahead. However, the possibility of an agreement and the prospect of a return to pre-war prices are not necessarily the same thing.
Crude oil inventories around the world have been depleted and need to be refilled at some point. Replenishing those stocks is likely to provide sustained demand over a long period. That demand could remain even with a deal, which is why I do not expect oil to revisit pre-war levels very soon merely because geopolitical tensions ease.
Inventory rebuilding limits the downside case
The crude oil outlook would look different if a substantial supply glut appeared, but that seems unlikely in the short term. As things stand, the need to rebuild inventories limits the downside risks. The balance of risks therefore remains tilted higher in the longer term outlook, from whatever price level we may get to post any US-Iran deal.
Technical crude oil forecast and key levels to watch
Brent has held the support trend of its continuation triangle and remained above the 21-day exponential moving average. The $100 area is the main support to watch, with the path of least resistance remaining higher while it holds.
A break above the triangle’s resistance trend could bring around $105 into focus initially, followed by the recent highs near $108 and then $110. Conversely, a move back below $100 support would be a warning that oil prices could be topping out. For now, the technical picture supports the bullish lean, but it still needs an upside break to open the way to those higher levels.
Frequently Asked Questions
Why does replenishment matter for the crude oil forecast?
Refilling depleted inventories creates demand that could last for a long period. That is a reason to distinguish easing geopolitical tensions from a rapid return to the earlier oil-price backdrop.
What would make the bullish Brent view less convincing?
A loss of the $100 support area would weaken the technical picture. A sharp oil-price decline would also need a change in the US-Iran situation, while a major supply glut appears unlikely in the short term.
How could further oil gains affect other markets?
Higher oil prices could add to upward pressure on bond yields through inflation concerns. That, in turn, could keep gold and major FX pairs undermined in the near term.
