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Crude oil rebounds but damage already done?

Fawad Razaqzada Fawad Razaqzada 07/07/2021
Crude oil rebounds but damage already done? Crude oil rebounds but damage already done?
Crude oil rebounds but damage already done? Fawad Razaqzada
  • OPEC+ meeting scrapped amid infighting
  • Brent drops after testing multi-year bear trend
  • Crude formed bearish engulfing candle on daily time frame
Crude oil prices tumbled about 3% on Tuesday after initially hitting fresh multi-year highs after the OPEC+ discussions were scrapped amid infighting. Prices have managed to rebound at the start of today’s session with both contracts rising about 1% each, along with other commodity prices and European indices. However, the rebound may fade later in the session or in the week as the longs potentially take profit in light of Tuesday’s big reversal from a key technical area.
 
Up until now oil prices have been driven primarily because of demand, with investors content the gradual release of supplies from the OPEC+ will help to keep the market relatively tight. In response to the group’s failure to reach a deal on Monday, investors initially figured that the lack of agreement means supply will rise even more slowly.  On reflection, however, investors have released that there will be lots of uncertainty about the OPEC’s output policy in coming months and there is a small risk that the whole agreement could collapse, potentially leading to another price war.
 
While it is still early days, investors will now not be in any rush to buy oil at these elevated levels – especially after the US government has spoken with officials in Saudi Arabia and the United Arab Emirates in hopes of reaching an agreement that “will promote access to affordable and reliable energy.” The key word is “affordable,” meaning the US will push for lower oil prices.
 
As more cracks begin to appear in the unity between Riyadh and Abu Dhabi, it will be interesting to see what, if any, solutions will be found to end the standoff and how this will shape the market in the next 1.5 years. It is a question of when rather than if Abu Dhabi puts more barrels of oil into the markets.
 
So, in the coming months, the oil market rally was likely to reverse anyway. That process may have already started.
 
Brent oil turned lower after touching its long-term bearish trend line, which has been intact since 2008 as this monthly chart shows:

Brent monthlySource: ThinkMarkets and TradingView.com
 
It is possible that we may see a big breakdown from here as OPEC supply is slowly restored to offset the strong demand.
 
Meanwhile the daily chart shows a potential bearish signal after forming a bearish engulfing candle on Tuesday:

brent oil dailySource: ThinkMarkets and TradingView.com 

This candle pattern shows sellers overtook the buyers and pushed prices aggressively lower. Potentially, the momentum may have already turned at this key technical juncture around the $75-$77 area.
 
At the time of writing, Brent oil was testing the breakdown area around $75.70ish. It is possible that rates may turn lower from here in light of Tuesday’s big reversal candle.
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.

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Carl Capolingua
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Carl Capolingua
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Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

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Mahmoud is a market analyst, with over a decade of experience in financial markets. He follows main market movers and tracks their effect on the price chart. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and with his wide experience in providing educational and guidance materials to all levels of traders, he helps them in making informed trading decisions. Before joining ThinkMarkets, Mahmoud was head of market research departments in different reputed financial companies, where he provided market analysis for a variety of asset classes, including FX, equities, indices, and commodity futures. As an experienced market commentator, he was hosted by too many print and broadcast media, including not limited to Sky News Arabia, France 24, Alarabyia, Alsharq-Bloomberg, and CNBC Alarabyia to discuss key risk events their clear impact on the price action. Mahmoud holds a Master of Business Administration (MBA) from Cardiff Metropolitan University of Wales, UK, and speaks Arabic, English, and Spanish.

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Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Lesego
Lesego Mthombothi
Lesego Mthombothi is an experienced market research analyst and investment professional who proudly holds an honours degree in investment management and completed her CFA level 1.
Mahmoud Alkudsi
Mahmoud Alkudsi
Mahmoud is a market analyst with over a decade of experience in financial markets. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and has experience in providing guidance to all levels of traders.
Shawn
Shawn Lee
Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.
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.
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