Market Overview

Brent Oil Forecast: Doors Open For $66.50, But Overbought Conditions On Charts


Brent Oil dipped to $56.16 last week, before rallying to a two-year high of $64.44 levels. The stellar rally is the result of the increased odds of the extension of the production cut deal. We have heard this reason before, however, it is slightly different this time...

The crackdown by Mohammed bin Salman (popularly known as MBS) is largely seen consolidating the Crown Prince's power. But why did it bode well for Oil prices?

The Cartel meets on Nov. 30 in Vienna. On top of the agenda will be an extension of production cuts. MBS is known to favor an extension of production cuts, thus the crackdown yielded a big rally in Oil prices.

Furthermore, as stated by Jeffrey Halley from Oanda Asia-Pacific, the potential disruption of supplies in Iraqi Kurdistan, Libya and also forgotten in the noise, Venezuela, appears to have played a role in strengthening the bid tone around Oil prices.

So will the geopolitical rally in Oil prices continue? As per technical studies, there is scope for an extension of the ongoing rally to $66.50 levels, although the short-term prospects look grim, courtesy of the overbought indicators. A healthy pullback could yield a more sustained rally towards $66.00-$66.50 levels.

First, we take a look at the weekly chart, which shows:

  • Flag & pole-like pattern: bullish continuation pattern
  • The RSI is overbought, calls for caution
  • 5-MA, 10-MA show bullish bias (sloping upwards)
  • 50-MA, 100-MA flatlined
  • 200-MA shows negative bias (sloping downwards)

The overbought conditions and the downward sloping 200-MA suggest there is merit in being cautious, although dips are likely to be capped between $60.29 (5-MA) and $57.76 (10-MA).

Coming to the daily chart, the price action remains in favor of the bulls, although in the short-term, oil looks vulnerable for a healthy technical pullback.

  • 5-MA, 10-MA sloping upwards.
  • 50-MA, 100-MA and 200-MA aligned one below the other, shows overall outlook remains bullish.
  • Solid higher lows pattern defined by rising trend lines (black, green).
  • RSI is overbought.

A corrective move to $60.00 cannot be ruled out, however, the position of the moving averages and the higher lows pattern indicates the dip is likely to be short-lived. Only an end of the day close below the green trend line would abort the bullish view on the daily chart. On a larger scheme of things, a break below $56.00 (black trend line) would signal a trend change.

To cut the long story short, the base appears to have shifted higher to $57-$60 range. The doors remain open for a rally to $66.50 levels, albeit after a healthy technical pull back.


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