Crude oil analysis: Brent aims to find a low after sharp drop

Crude oil analysis: War risk premium fades
OPEC+ cuts and reduced fears about Eurozone economy keep oil prices supported
Brent oil technical analysis suggest prices are now at key support zone

Crude oil analysis: After a near 10% drop, prices could rebound

Since peaking in mid-April, crude oil prices have slumped nearly 10% in the spaces of just a few weeks. The sharp drop reflects in part the removal of war risk premium that was slowly priced in as the tensions in the Middle East intensified with Iran and Israel attacking each other directly. But as tensions have eased and hopes for a ceasefire between Israel and Hamas have grown amid international pressure on Jerusalem, oil prices have basically given back all the gains made since early March. There is also some concern about demand in the US where commercial crude inventories have been building more than expected as the rate at which refiners process crude to crude products have dropped noticeably. Still, following the recent correction, the downside could be limited from here on. For one thing, there is still the risk of the Middle East conflict intensifying again. For another, economic data in Europe have improved while Chinese concerns have eased, lifting the demand outlook.

Crude oil analysis: US demand should pick up heading towards driving season

The bulk of this week’s drop in oil prices took place on Tuesday and Wednesday, evidently on the back of the stockpiles data from the US. The US Energy Information Administration reported a surprise 7.3 million barrels of crude into stockpiles during the week ended April 26. Inventories are now at their highest levels since June 2023. What’s more, the refinery utilisation rate dropped to 87.5%, which was significantly lower than 90.7% in the year-ago period. Apparently, demand for gasoline has dropped. On average, the daily gasoline demand was 8.5 million barrels per day last week. This was some 1.3% lower than the same period a year ago.

But the refinery rate should climb as we head towards the US driving season, unofficially starting on Memorial Day weekend on May 27, all the way through Labor Day in early September.

What’s more, ongoing supply cuts by the OPEC+ group is likely to continue in the background, limiting any bearish moves.

Crude oil analysis: Brent oil technical analysis

Source: TradingView.com

After the sizeable drop in the last few weeks, crude oil prices are now technically oversold on the 4-hour time frame when you look at the RSI indicator. The Daily RSI is near 35, so it is not quite in the 20 threshold yet.

Nevertheless, the underlying price of oil is at a key support zone. As you can see on the chart, the area around $83.00 to around $82.40 was the base of the breakout after a multi-week consolidation back in March.

As it happens, we have the bullish trend that goes back to December and the 200-day moving average also converge slightly ahead of this area near $84.00. Although we have seen Brent oil fall below both the trend line and moving average, it would be a bullish outcome if prices were to go back above these and hold there heading into the weekend.

Such a scenario could pave the way for further technical buying, at least towards the next area of trouble at $85.00 to $85.50, an area which was formerly support. Additional resistance is likely to be provided by the resistance trend of what looks to be a bull flag or falling wedge continuation pattern, near $86.50

For oil to make a complete bullish reversal, we will eventually need to climb out of the above-mentioned pattern.

For now, though, the key question is whether it will be able to find a bottom around the $83.00 area and reclaim the 200 day and the bullish trend line.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.