Risky commodities continue to bear the brunt of the sustained selloff which has seized hold of the global markets since Thursday last week. Today’s selloff saw crude oil prices of the Brent crude benchmark drop below $40 for the first time since 29 June. This downward move extends the losing streak of Brent crude to the 5th session as risk aversion causes traders to flee towards the US Dollar.
Demand concerns have set in as a slew of events continue to put pressure on the markets. The coronavirus continues to spread and a new uptick in cases in several countries threatens to stem the ongoing global recovery. Recovery has slowed in several countries, and the resumption of EU-UK Brexit talks seem to be heading nowhere. The US Jobs numbers of last week showed that private sector employment has fallen off in recent times, and even the NFP was only better-than-expected on the back of ad-hoc hiring for the US census. Demand for crude oil is yet to pick up, capping upside performance on the Brent beyond $45 since it gapped downwards on the 6th of March.
Cementing bearish bias on crude oil price is the CFTC Positioning Report for the week ended September 1, which showed that net longs on crude oil have dropped to 6 month lows.
Technical Outlook for Brent Crude
Brent crude has broken below the rectangle pattern and also burst through the 41.43 support by more than a 3% penetration, which confirms the breakdown of that price level. A pullback to retest this broken level may not be ruled out. Such a pullback is expected to be repelled by that price level now acting as a resistance. This opens the way for price to continue its descent to test the 38.56 support. 35.61 and 31.69 remain valid potential support areas to the south.
On the flip side, if the breakout fails to be sustained on lack of follow-through selling, a recovery towards the previous range floor of 44.16 could follow. However, the risk averse sentiment could make this move difficult to achieve in the circumstances. It could also be a chance for sellers to move in on any rallies.
Crude Oil Price Chart (daily)