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Crude Oil Forecast: Brent Limited by China’s COVID Policies and Stronger USD

Crude Oil Forecast: Brent Limited by China’s COVID Policies and Stronger USD

Warren Venketas, Analyst

BRENT CRUDE OIL (LCOc1) TALKING POINTS

  • Demand-side forecasts take a hit once more after Chinese COVID-19 fears recommence.
  • U.S. midterms in focus.
  • Brent crude prices remain within rising wedge.

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BRENT CRUDE OIL FUNDAMENTAL BACKDROP

Brent crude oil prices have been marginally curtailed this morning after Chinese health officials reiterated this importance of their ‘zero-COVID’ policies, suppressing optimism around a Chinese reopening. This has left commodity prices largely in the red while a stronger USD adds to downside momentum.

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U.S. midterm elections are this main focus for today and much talk has centered around a possible gridlock within the government leaving future policies extremely difficult to pass from either Democrats or Republicans. The importance of this could surface in 2023 should inflation subside and the economy requires fiscal stimulus. Because this is unlikely to pass through congress in a divided government, the responsibility almost has to fall on the Fed to cut interest rates in order to stimulate the economy. In theory this should weaken the greenback giving added support to crude oil prices.

Later this evening, API weekly stock data (see economic calendar below) is due and after last weeks surprise decline, another slip could give brent crude some support.

ECONOMIC CALENDAR

image1.png

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

BRENT CRUDE (LCOc1) DAILY CHART -UNDATED

image2.png

Chart prepared by Warren Venketas, IG

Daily brent crude price action shows a developing rising wedge chart formation (yellow). The RSI reading suggests slowing bullish momentum but still has room to push higher depending on the upcoming fundamental catalysts discussed above. Traditionally, a rising wedge points to impending downside after a bullish consolidation but confirmation needs to come from a candle break and close below wedge support which is a long way away at this point.

Key resistance levels:

  • 100.00
  • Wedge resistance

Key support levels:

  • 95.00/100-day EMA (yellow)

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IG CLIENT SENTIMENT: MIXED

IGCS shows retail traders are NET LONG on crude oil, with 56% of traders currently holding short 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 term positioning we arrive at a short-term cautious bias.

Contact and followWarrenon Twitter:@WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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