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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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Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

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.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
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.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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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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