Crude oil price on the Brent benchmark continues to push on with its steady advance, rising to 5-week highs at $34.90 on the back of the deepening of the crude oil production cuts by Saudi Arabia and other OPEC + states. So far, Oman has committed to extend cuts, and Nigeria also released a statement through its energy ministry to the effect that it was complying with its assigned production cuts.
The big question now is whether this is a natural demand-driven increase or one driven by the fundamentals of the day? Presently, the market has been on a search of any positives since prices virtually collapsed a few weeks ago. Demand is yet to pick up, but last week’s data showing an increase in China’s factory activity provides hope. But the commitment by the Saudis seems to have spurred buyers who are willing to take any scraps they can get at the moment.
Open interest data from the CME Group shows that July 2020 – December 2020 contracts have started to see significant pickup since the lows experienced immediately after the collapse of the May 2020 WTI contract. In the medium-term, fundamentals continue to remain weak, and it remains to be seen if crude oil price on the Brent benchmark can exceed the $40 mark in the weeks to come.
Brent crude oil is trading at 34.82 as at the time of writing. It found resistance at the 35.61 price level (previous highs of 13 March and 9 April), and for the price to hit the projection point from the break of the bullish pennant at 38.56, this resistance needs to give way.
The measured move from the pennant is expected to burn out at the 38.56 resistance (previous highs of 10 March). Only a break of this level to the upside could take crude oil price to the $40 mark, with 41.43 acting as new resistance.
On the flip side, failure to break the current resistance could lead to retests of the downside targets at 31.69 and 28.38, with a possible decline to 24.68 and even 22.35 if sellers re-enter the fray.
This week’s crude oil inventories data could provide short-term direction for price moves.