Monday has seen crude oil price on the Brent benchmark dropping 3.1%, despite the promise by Saudi Arabia to cut its production output by an additional 1 million barrels in June. While the Saudi offer provides an opportunity for crude oil price bears to stay away from the fresh kills of March and April, they still hang around in the distance as the latest moves still do not provide much in terms of real price advance in the long-term.
Crude oil price bulls seem to have benefitted from the cuts by OPEC + kicked in on May 1 and provided some respite for the bulls. Additional props may also come from the easing of lockdowns across the world. However, price advance beyond $40 a barrel has to have some substantial backing: substantial ramp-up in demand and utilization of stocks that have filled storage facilities to overflowing.
Easing lockdowns mean that the is now a pathway towards the recovery of demand. However, there is always the likelihood of coronavirus cases starting to spike once more as people begin to hit the transportation hubs, shopping malls and workplaces. Complacency is the greatest danger confronting a pandemic-stricken world, and this could pose headwinds to the crude oil price recovery. Renewed shutdowns are the last thing energy prices need: it may not take much to send prices down in a jiffy.
Since crude oil price on the Brent benchmark broke out of the falling wedge pattern, it has found it hard to breach the resistance at 31.69. In the process, a bullish pennant has formed from the breakout move and the accompanying consolidation.
A bullish resolution of the pennant may produce the relevant filter required to confirm the break of 31.69. This move would have the chance to target the 35.61 resistance (13 March and 9 April highs), with 38.56 just ahead. A price push that can hit 44.16 must first breach 38.56 and 41.43, in that order.
On the flip side, a breakdown of the pennant would cause a decline which retests 28.38, with 24.68 and 22.35 (November 2002 lows) remaining relevant as long as bearish pressure persists.