Crude oil prices have been trading inside a narrow range for the past two and a half weeks. Investors are torn between rising signs of a strong economic recovery in the US and concerns about prolonged lockdowns across the eurozone, with cases continuing to rise in places such as Germany and after France went into a lockdown. The German government has said that the health system is under threat, with Chancellor Merkel said to back 'short national lockdown' to tame coronavirus spread. Meanwhile, the situations in India and Brazil are getting worse. This is likely to weigh on demand and hold back oil prices in the short-term outlook.
Still, demand for oil in the coming months should pick up as lockdowns are slowly removed and more economies ease travel restrictions ahead of the summer holidays, with the rollout of the coronavirus vaccines promising an end to the global pandemic. However, the impact of this will be offset by rising oil supply. Last week, the OPEC+ agreed to monthly production hikes from May to July. Iran, which is exempt from making voluntary cuts, is also boosting supply. Meanwhile, indirect talks between Iran and the US as part of negotiations to revive the 2015 nuclear deal means there is a possibility that sanctions over Tehran could be lifted in the future, resulting is more crude exports. In the US, oil production has also risen and if prices remain high the pressure will grow on shale producers to ramp output.
So, I can’t see oil prices rising significantly further. Brent will has already struggled to stay above $70 and WTI couldn’t stay above $65 for long. These will remain the key resistance levels going forward, and should prices rise again, I can’t see them holding above these levels for too long in 2021.
In the short-term, what happens next depends on whether prices will be able to break out above or slump below the recent consolidation range. If WTI breaks lower then support at $53.50 could be the next downside target, while a breakout could target the next resistance at $63.60.
Source: ThinkMarkets and TradingView.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.