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Brent Crude – Relentless oil rally showing no signs of exhaustion

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  • Saudi and Russian cuts continue to drive the price higher
  • Could a cooler economy push it back?
  • Momentum indicators continue to support the rally

This oil rally has been relentless and I’m not seeing any signs of exhaustion yet. A 15% rally in the space of around three weeks to trade at levels not seen since last November and not far from triple figures, it’s been an impressive move and there could be more to come.

Saudi Arabia and Russia have been very effective in squeezing a tight market that much further to create a situation in which oil prices are trading well above the zone they’ve been stuck around for much of the year. You would imagine there’ll be a limit to their ambitions, not to mention their desire to continue the additional voluntary cuts but that may well depend on the demand side over the coming months.

They’re committed until the end of the year but if demand softens as those additional cuts expire then the price could cool somewhat. The group has been heavily criticized over the last year for what were labelled unjustified cuts but for the bulk of that time, the price hasn’t risen as much as thought. Is this a sign of cuts going a step too far or will demand weaken to the point of prices pulling back again?

No lack of momentum in the rally

The key to this chart after such a powerful rally is the momentum indicators at the bottom and neither the stochastic nor MACD are showing signs of divergence.

BCOUSD Daily

Source – OANDA on Trading View

That doesn’t mean the price can’t fall or correct lower but it does suggest the rally is healthy, even after such a large move. If the rally does continue, it will be interesting to see whether divergences form on approach to $100. Psychology can often play a role in the markets and that could be the case again.

This is also where the price failed last October and November barring a couple of brief moments above. $98 may also be an area of interest having been so at times in the past, although at that point I expect all of the talk will be about whether it can breach triple figures once more, and if so, where next?

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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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