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Brent crude – Correction or more to come?

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More reason to be bullish on oil?

Oil prices have been given a lift over the last week following the escalation in the Gulf, as Iran shot down a US drone and Trump reportedly came extremely close to retaliating and escalating the conflict considerably.

The importance of the Strait of Hormuz for global oil markets has been heavily reported, which has strongly contributed to it finally breaking higher having remained under pressure for weeks. There were many positive influences that enabled oil to finally break free from the shackles of the bears, including the stock market rally, surprise inventory drawdown and positive comments ahead of this week’s Trump/Xi meeting.

Whether this will be sustained this week will depend on a number of factors, most notably that meeting and the prospect of further escalation in the Gulf. Inventory data from API on Tuesday and EIA on Wednesday will also be eyed given last weeks surprise reduction.

From a technical perspective, we’re currently seeing resistance around $57-58, which coincides with recent support and resistance and roughly (just shy) the price projection from the double bottom. As ever, these things are far from a science and are not expected to be.

Brent Daily Chart

OANDA fxTrade Advanced Charting Platform

The question now is whether oil will build on these gains or if they were just a corrective move backed by numerous triggers that were too hard to ignore. The Trump/Xi meeting may well play a large role in determining this, not to mention the prospect of further escalations in the Gulf.

In terms of what the charts are saying, we may be seeing some profit taking now following a strong week but there doesn’t appear to be a huge amount of downside appetite.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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