Oil Price Outlook: Brent Crude Eyes Further Gains on Supply Risks

• Crude Oil prices start the week on the front foot, up 0.94% at the time of writing.
• Geopolitics, supply risks and the summer holidays keep buyers hopeful.
• MA crossover and support bounce hint at fresh highs this week.

Fundamental Overview 

Oil benchmarks are trading higher to start the week as supply risks were helped by US dollar weakness. The continuous shadow of the Middle East tensions continue to hover over markets, and oil markets in particular with ship attacks in the Red Sea adding to supply risks Brent is coming off a week in which it gained some 3.2% WoW and is looking to build on an impressive run of late.  

Expectations have grown in recent weeks regarding the potential of tight oil supply balances in Q3 as OPEC + keeps output cuts in place. The geopolitical risk has also added a premium on oil prices of late and with each day that tensions continue to build, one can expect the premium may likely rise as well. 

The heatwave experienced in some parts of the world as well as summer holidays have added to demand expectations. This follows on certain airline reports that travel is now back at pre-pandemic levels and set to increase over the holiday period. This has raised concerns in some quarters that oil inventories may come under strain as the summer progresses with Chinese data pointing in a similar direction. The National Bureau of Statistics (NBS) data released out of China last week also showed a slowdown in refinery output of about 1.8% YoY,  and could be another factor in the resurgence of oil prices.

The Week Ahead 

Looking ahead to the rest of the week, markets will focus on the global growth picture before US PCE data is released on Friday. The US PCE data is considered the Fed’s preferred gauge of inflation. A sustained slowdown in PCE data could add to US dollar weakness and help keep oil prices supported. 

Ahead of this data we have the all to familiar API and EiA inventory releases on Tuesday and Thursday respectively. It will be interesting to keep an eye on this data as the summer gets into gear for any signs of a significant drop off in inventories. .

For all market-moving economic releases and events, see the MarketPulse Economic Calendar.

Brent Crude Technical Outlook

The technical picture for Brent crude is intriguing as the price has been in a range since the middle of last week. A bearish end to the week yet oil prices held firm above the key support level around the 84.70 mark.

The MA crossover (100-day MA crossing above the 200-day MA) a further sign of the bullish momentum in play. The weaker US dollar today has helped crude prices rise toward the immediate resistance level (last week’s highs) at 86.213 with a break above opening up a retest of the resistance area around the 87.90 handle. 

Alternatively, a rejection of 86.213 could open up a retracement toward 84.70 and the moving averages resting just below. This would be a tough area of support to breach given the number of confluences present. If by some chance price does breach the MAs, the next area of interest is the 83.00 handle.

Brent Crude Oil Daily Chart, June 24, 2024

Source: TradingView.com (click to enlarge)

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.