Brent Crude Oil, correction may be temporary
This week, the price of Brent Crude Oil has reached seven-year highs, rising to 89.50, but investors started fixing profits, supported by a weak report from the American Energy Information Administration (EIA), and the price adjusted to 85.70.
According to the statistics of the department, the reserves of “black gold” increased by 0.515M barrels instead of the expected decrease by 0.938M barrels, while gasoline reserves increased immediately by 5.873M barrels and only the distillate index decreased by 1.431M barrels. Nevertheless, the current correction is seen as temporary, since the general fundamental factors remain favorable for the oil market. Investors hope that the demand for “black gold” will continue to increase against the background of the refusal of the world’s leading consumers to introduce serious quarantine measures in connection with the development of the coronavirus pandemic caused by the Omicron strain. Moreover, in a number of regions, for example, in the UK, there are already signs of a decrease in the incidence rate.
Also, the growth of tension in the Middle East contributes to the strengthening of energy quotes, primarily due to the ongoing conflict in Yemen. Earlier, Yemeni Houthi rebels had already attacked infrastructure facilities in Saudi Arabia, but this week they launched a missile attack on the airport and industrial facilities of the capital of the United Arab Emirates (UAE), Abu Dhabi. As a result, oil terminals were damaged and several people were killed. The Houthi leaders said that attacks on the infrastructure of Saudi Arabia and the UAE would continue, which could lead to disruptions in the supply of oil to the market of the two leading OPEC producers.
It should also be noted that the International Energy Agency (IEA) said on Wednesday that the supply of oil in Q1 2022 may exceed demand, since some countries (for example, the USA and Canada) may bring production to record high levels, but the market did not attach serious importance to these warnings.
Support and resistance
Oil quotes fell below 87.50 (Murray [8/8]) and, judging by the exit of Stochastic from the overbought zone, the asset may continue to decline to the area of 84.40 (Murray [7/8]) and 82.75 (the middle line of the Bollinger Bands). The overall downward trend is unlikely to be broken, its persistence is confirmed by the growth of the Bollinger Bands and the MACD histogram in the positive zone. In case of a reverse breakout of 87.90 (Murray [8/8]), the price will be able to continue moving to the levels of 90.60 (Murray [+1/8]) and 93.75 (Murray [+2/8]).
Resistance levels: 87.50, 90.60, 93.75.
Support levels: 84.40, 82.75.