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Brent Crude – Oil pares gains in risk-averse trade

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  • Potential profit-taking after immense rally
  • Economic pessimism may weigh in the future
  • Bullish flag formation may suggest there’s more to come

Risk aversion in markets may be weighing on oil prices a little, especially if economic fears are fueling that sentiment.

Oil prices have rallied strongly on the back of supply restrictions and the economy failing to live up to expectations was always going to be one of the primary counter-risks for the price.

I wouldn’t say that is now unfolding but clearly, investors are a little concerned about whether the economy can sustain current levels of interest rates for a prolonged period of time.

From a technical perspective, I’m not seeing anything particularly concerning about the recent pullback. Brent crude still looks well supported, with today’s initial declines being short-lived as the market rebounded around the highs from earlier this month.

We may still see more of a correction but there’s no clear sign of sentiment turning bearish after such a strong rally over the summer.

A bullish continuation pattern?

The recent consolidation we’ve seen after such a strong rally looks a little like a bullish flag formation which may be a further sign that sentiment has not changed in the market over the last week.

BCOUSD Daily

Source – OANDA on Trading View

A break through the top of the descending channel could be a sign that the prior trend has resumed, especially if backed by momentum which will be key as we near some major psychological levels.

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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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