While many markets are in a Thanksgiving lull this week, Brent crude oil (BRENT) prices are capturing traders' attention for valid reasons.
The OPEC+ meeting, initially scheduled earlier this week, has been postponed to Thursday at 13:00 GMT. A Reuter’s source suggests that resolving a quota dispute among oil producers is crucial before the meeting. It is also anticipated that the meeting will result in significant supply cuts. This comes as Brent crude oil prices have declined from $98 to $76 in recent months, stabilising around $80. The supply cuts continue the reduction strategy started in 2022, where OPEC+ aims to cut 5% of the total crude oil supply.
However, oil producers are feeling the strain with crude oil prices reverting to December 2022 levels, marking a 38% decrease from 2022's peak.
Observing these producers' challenges, traders have quietly carved out an inverse head and shoulders pattern over the past 20 days. While modest and nascent, this pattern indicates that breaching the neckline could raise prices by as much as 8%, potentially reaching $89 per barrel. According to this pattern, a breakthrough at the $82.83 neckline, combined with the anticipated supply cuts, could be the catalyst needed to drive the market upwards.
Brent Crude oil CFD, Daily Chart
What is an inverse head and shoulders pattern?
The inverse head and shoulders pattern typically forms during a downtrend. It begins when the price drops to a new lower low, for example, from $100 to $90. A rebound follows this, but the rebound often does not reach the original level before the decline, settling at a lower high, e.g., $95.
As the price reaches $95, sellers again drive the price down, this time to an even lower low, perhaps to $85, creating the 'head' of the pattern. However, they don’t have enough strength to maintain the price at these lows, leading to a sharp rise, approaching the level of the first rebound, back to around $95.
The sellers make another attempt to drive the price down, reaching the level of the first low ($90), but they fail to push the price below this level. This inability to reach a new lower low indicates a weakening downtrend and forms the second shoulder of the pattern.
We now have two highs at $95, so we can draw a trendline via them and call it the neckline. Once the price breaks above this neckline, the inverse head and shoulders pattern is considered complete.
The objective of the pattern is calculated by measuring the distance from the lowest point of the head ($85) to the neckline ($95) and projecting this distance upwards from the neckline. In this example, the difference is $10, so the price target would be $105 ($95 + $10). The pattern suggests that as long as the price does not fall below the neckline, the bullish reversal will likely continue towards its target.
Go long or short on BRENT with an award-winning broker today. Make the most of ThinkTrader’s extensive set of technical analysis tools to build your own strategy.
Open an account now: portal.thinkmarkets.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.