Brent crude oil has been staging a big rebound above the $70.00 resistance level as concerns about global demand started to ease while a major outage in Mexico support higher oil prices.
The major outage took place after a fire at a Mexican platform, which killed five workers on an offshore platform operated by Mexico’s state oil firm Pemex, and injured another six. The platform and 125 wells reduced Mexico’s crude oil production by 421,000 barrels per day and could take a long time to restart.
ING strategists commented about the recent supply shock incident “An extended outage would likely be supportive for heavier grades of crude oil, with reduced output tightening the market for heavier crude oil.
Oil price have also been receiving a boost on the pushing back of tapering QE expectations and the Pfizer-BioNTech COVID-19 vaccine, which became the first vaccine to get full approval from the FDA. US dollar weakness ahead of Jackson Hole has also been a tailwind for oil prices this week.
On the technical front, Brent crude has scope to recover higher, however, the recovery is highly dependent on market sentiment and what the data is saying in regard to the global economy. And particularly China, which the oil market is very sensitive towards for obvious reasons.
Market sentiment towards Brent Crude is still extremely bullish, which typically bodes ill for Brent oil, and could hint at the recovery being overheated, or at least the fact that the latest move above $70.00 may be just a relief rally.
The ActivTrader Market Sentiment tool shows that some 75 percent of traders are bullish towards further gains in Brent oil. This is a worrying sentiment extreme. We probably need to see sentiment dropping significantly before a sustainable rally above $71.00 can take hold.
Brent Crude Oil Short-Term Technical Analysis
According to the four-hour time frame Brent crude is trading back above a large symmetrical triangle pattern, following a notable downside break last week. This is actually very bullish.
The overall size of the bullish this pattern is predicting a coming $5.00 price move to the upside. Bulls need to hold the price above the $70.00 level to keep the breakout activated.
Brent Crude Medium-Term Technical Analysis
Looking at the daily time chart, a potential large, inverted head and shoulders pattern, with over $10.00 upside potential, remains the central focus of medium traders.
A move above the $77.00 level would likely take Brent crude towards $90.00. The much bigger picture could see Brent reaching $100.00 in future if the pattern plays out to its full upside projection.
Much will depend how Brent acts around the $70.00 to $75.00 price range over the coming days and weeks. I suspect in September Brent will make a big move.
It should be added that much will depend on the fundamentals, as oil will probably need to see the United States and Chinese economy recovering in order to drive demand.