Brent Crude Oil Taking Advantage of Weaker USD, IEA Outlook & Supply Interruptions

BRENT CRUDE OIL (LCOc1) TALKING POINTS & ANALYSIS

• All eyes point to Fed Chair Jerome Powell for guidance later today.
• Future crude oil demand emphasized by IEA report while interruption at key export terminal in Turkey backs crude oil prices.
• Key resistance zone under pressure.

BRENT CRUDE OIL FUNDAMENTAL BACKDROP

Brent crude oil is trading higher this Tuesday morning with a flurry of supportive fundamental factors in play. Beginning with the USD, a hawkish Fed official (Bostic) hinted at further rate hikes and possibly the move back to 50bps increments. Unfortunately for the greenback, the Dollar Index (DXY) didn’t rally as expected largely due to the fact that today’s address by Fed Chair Jerome Powell will attract markets attention. Taking into consideration last week’s stellar Non-Farm Payroll (NFP) report, it will be interesting to see whether Mr. Powell reinforces an aggressive stance to monetary policy or not. The former could be detrimental for crude oil prices negating recent upside gains.

Closing out the trading day, weekly API data will fall under the spotlight and should recent higher stocks release again, crude oil may be under pressure once more.

ECONOMIC CALENDAR

Source: DailyFX economic calendar

The IEA reported that roughly “half of global oil demand will come from China”, fanning the China re-open story and buoying crude oil. The recent tragedy impacting Turkey and Syria has reached as far as the oil market by way of devastating a key export terminal in Turkey. The disruption in supply chain will hold from February 6 – 8 curbing supply to markets.

TECHNICAL ANALYSIS

BRENT CRUDE (LCOc1) DAILY CHART

Chart prepared by Warren Venketas, IG

Price action on the daily Brent crude chart above shows bulls defending the short-term trendline support (black) coinciding with the 80.00 psychological handle. The 50-day SMA (yellow) is under threat but caution is being exercised by market participants as revealed by the Relative Strength Index (RSI) favoring neither bullish nor bearish momentum at this point. As mentioned above, Fed Chair Jerome Powell’s address is highly anticipated and could provide the catalyst short-term.

Key resistance levels:

• $85.00
• 50-day SMA

Key support levels:

• $82.38
• $80.86
• $80.00

IG CLIENT SENTIMENT: MIXED

IGCS shows retail traders are NET LONG on Crude Oil, with 81% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short positioning we arrive at a short-term cautious disposition.

Contact and followWarrenon Twitter:@WVenketas