Brent Crude – Is the oil rally starting to stall around $80?

• US inflation data takes Brent above $80
• Chinese trade data disappoints again
• Momentum appearing to wane

Oil prices are a little higher again in early trade, seemingly still buoyed by yesterday’s US inflation report, and are continuing to push for a convincing break above $80 in Brent crude.

It is trading a little above $80 this morning and did at times yesterday, but rather than generating fresh momentum, it seems to instead be running into some difficulty. That would be understandable. After all, it’s rallied around 12% in two weeks, primarily on the back of the extension to the Saudi one million barrel cut to the end of August, alongside Russia’s 500,000 barrel export reduction.

Some profit-taking at these levels wouldn’t be hugely surprising and may have come sooner if not for the US CPI data. What’s more, trade data from China overnight wasn’t exactly inspiring which may have dampened the rally a little. Chinese imports and exports slumped at a faster pace than expected in June in another sign of weakening global trade. We’ve seen this trend all year and clearly, conditions are not improving, quite the opposite.

This will maintain pressure on the economy with domestic demand also disappointing, as seen by the weaker import numbers. Targeted stimulus may be needed sooner rather than later or the country’s once seemingly modest 5% growth target may be at risk of being missed.

The breakout in Brent crude above the descending channel and above the 55/89-day simple moving average band was quite strong and it appeared to be building some momentum but there are signs that this is slipping today. The daily candle itself isn’t complete so I’m hesitant to comment on it but a close around where it currently lies is in theory bearish, being a shooting star candle.

Brent Crude Daily

Source – OANDA on Trading View

The stochastic and MACD look ok at the moment on the daily chart, there aren’t any real red flags as far as they’re concerned. That’s less the case on the 4-hour and even the 1-hour charts which may point to a potentially corrective move in the short-term.

Brent Crude 4-Hour

Source – OANDA on Trading View

Brent Crude 1-Hour

Source – OANDA on Trading View

Either way, longer term this looks like a very bullish move. Breaking out of a two-month range on the back of supply cuts, weaker inflation readings, and the potential for softer landings for the economy. The China data is a concern but some stimulus could change people’s views on that front.

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