Brent Oil Forecast: Limited Upside & Vulnerable To Correction

Rally in the Brent oil appears to have come to a halt around the $63.50 levels this week largely on account of the short-term overbought technical conditions and due to an unexpected build in US oil inventories.

As of writing, Brent is trading flat-lined at $63.80/barrel. Prices have rallied more than 40 percent from the June low of $44.35. While the long-term outlook remains bullish, still there is potential for a pullback.

As for today, a short-lived rally to the $64.80 levels could be seen.

Daily chart

5-day MA has caught up with the price, courtesy of this week's sideways action. The moving average support is proving a tough nut to crack today. Also the RSI, despite being close to the overbought territory, is still well short of the (overbought levels) highs seen in late September. Thus, prices could test supply around the rising channel resistance of $64.80 today.

However, the spike is likely to be short-lived as suggested by the overbought RSI on the weekly. Furthermore, the weekly 200-MA still favors the bears (sloping downwards). Hence, brent is unlikely to rally beyond the rising channel resistance and could actually witness a pullback to the $62.00-$60.00 levels in the short-term.

Note that a spike to $64.80-$65.00 today or on Monday would push the daily RSI into the overbought territory. That would only improve the odds of a technical correction.

A pullback from the current levels would qualify as a much needed healthy technical correction. Fresh bids are likely to come in anywhere between the range defined by the upward sloping weekly 5-MA and 10-MA.

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A spike to $64.80-$65.00 today could be followed by a technical correction to the $60.00 levels over the next week.