Brent Crude Oil Price Forecast Talking Points:
- The ONE Thing: Brent has all the signs of a trend with favorable momentum being maintained. Whether you look at cross-asset correlation like US Treasury yields breaking 3.1% or the spread between Brent to WTI blowing out showing that Brent tightness is accelerating while the US is producing all it can and experiencing bottlenecks in the process.
- Brent crude oil is historically a helpful signpost for understanding the economic cycle as higher oil prices tend to validate broader economic trends and the current rally in Brent is aligning with the 2006 move higher in Brent that had a few years of fuel left in the tank (excuse the pun.)
- The latest extension in the rally higher was backed by Total leaving Iran that is compounding on recent bullish EIA data on gasoline and crude exports.
- Brent Crude Oil Technical Analysis Strategy: Uptrends are naturally overbought.An inability to close below the 26-day midpoint shows the trend remains in force as prices just broke above a key level on the long-term chart.
- Access our recent Crude Oil Fundamental Forecast here
Wednesday’s EIA Crude Oil Inventory reports showed that the US refiners are aggressively processing the massive amounts of crude produced by shale firms and exports continue to aggressively rise. On the other side of the world, sanctions on Iran and lack of CapEx from historically major producers like Venezuela are causing a blow-out in the spread between the US crude futures contract and the international benchmark, Brent.
US Crude Discounts May Continue To Brent As Spread Blows Out
Data source: Bloomberg
The takeaway from the chart above is the exceeding premium that Brent is receiving in the markets right now as tightness in Brent is meeting maxed out production in the United States.
Oil as an Economic Cycle Sign-Post
Most of the talk around the research desks have been on the flattening yield curve in the US as signs of an advanced economic cycle. However, the gains in crude oil also point to a stronger global economy. While the sanctions and geopolitical risk premium cannot be ruled, they also cannot be credited for the entire trend higher.
From a multi-asset investor approach, keep an eye on the equity market tilt toward energy and commodity companies, which are likely to see the healthiest profit margins as the US 10-Year yield taps 3.1%. Put simply, fighting Brent crude’s gains has been a losing fight and may continue to be for some time.
Unlock our Q2 18 forecast to learn what will drive trends for Crude Oil in a volatile Q2
Technical Views: Overbought May Show Health, Not Shorting Opportunity
Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT
The chart above shows Brent crude since late 2016 with multiple overbought signals via the RSI(5).
While selling at overbought can help your ego upon entry in thinking you sold high, the broader underlying uptrend shows that the better play is likely to hold on if you’re already long (check) or look to reestablish or further tilt your portfolio toward crude on any subsequent pull-backs in a seemingly strong trend that has more upside yet (check, again.)
Short-term support can be found at the range of the 9- & 26-day midpoint at $76.53-75.66/bbl. These are Ichimoku levels applied to daily trading data that have provided a clear view of bullishness since mid-March.
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More Trading Resources You:
Are you looking for longer-term analysis on Crude Oil and other popular markets? Our DailyFX Forecasts for Q2 have a section for each primary currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.
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---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.
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