Brent Crude Oil is under heavy pressure after recently rejecting key resistance levels, suggesting a resumption of the downtrend is likely, with next supports at $65.72 and $63.02, analysts at Credit Suisse report.
Key resistance at $86.41/89.37 still expected to cap
“With medium-term momentum still negative and short-term momentum crossing back into outright bearish territory, we look for a break below current year-to-date low at $70.12 imminently, which would open up a move to the major cluster of supports between $65.72 and $63.02 next.”
“Key resistance at the 200-DMA and key highs at $86.41/89.37 is still expected to cap should the market stabilize and turn back higher, but even this is not our base case.”
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Crude oil prices saw some mild recovery recently due to a combination of factors including production cuts from OPEC and an easing of Lockdown restrictions across the world, however it appears that Brent oil prices may be due for a sharp downturn as Credit Suisse have recently suggested that a break below the year-to-date lows of around $70 could re-assert a bearish downtrend for the commodity.
According to Credit Suisse commodities analyst, Randy Chen, a break below the 2020 low of $70.35 per barrel for Brent Oil will indicate the oil market is far from balanced and that the weak pricing could remain for some time. He noted that the recent rally in Brent oil prices had stemmed from panic buying among investors anticipating an economic recovery, however this optimism is now fading.
Chen believes that the current low oil prices are set to persist and that a break below $70 could signal the start of a bearish trend as investors enter a new wave of caution and continue to show reduced risk appetite. He went on to note that a further drop in prices could see Brent crude retreating below its $50-per-barrel level seen in the spring.
In terms of the downside risks, Chen highlighted the ongoing demand destruction due to the ongoing COVID-19 pandemic as well as an increase in inventories and production levels. He warned that any additional supply from OPEC+ nations could also exacerbates the already saturated market.
Overall, Credit Suisse has suggested that a break below the 2020 lows of Brent oil prices could act as a catalyst for a bearish downtrend in the commodity as investor optimism begins to fade. The bank cautioned that further downside risks could see Brent crude falling below its $50-per-barrel level and remain depressed for some time.