Brent fell sharply on Wednesday, August 18. The price action started near $68.7/bbl. Moderate gains were seen during the first half of the day, with the price rising to $69.6. But the situation turned around in the early afternoon as oil plunged to $67.0 by the end of the session, breaking through the $67.4 support level on the way down.
At first glance, yesterday’s EIA report should have played into the hands of the bulls. It showed a 3.24 mln bbl drawdown in crude oil inventories, while experts had expected a decline of only 1.05 mln bbl. But even these numbers failed to reverse the firmly entrenched bearish trend.
In Thursday morning APAC trading, the price action broke through another key support level at $67.0, and has moved even lower since the outset of the European session, dropping in the afternoon to $65.6. This is the lowest level since May 21.
The downtrend in oil is driven first and foremost by strength in the dollar. After a number of statements by Fed officials, the market expects the regulator to gradually wind down QE at the end of this year, and to start hiking interest rates from mid-2022. As a result, the dollar is seeing gains against all major currencies, whereas equity markets and commodities are in decline. Moreover, it should not be ruled out that the recent appeal by US President Biden to the countries participating in the OPEC+ agreement to boost oil production in order to cut oil prices might have hit the mark.
Our Brent price forecast for the rest of the day is $65.1-$66.5. The medium-term range for Brent, after breaking through the support levels at $67.4 and $67.0, has widened to $64.5-$ 71.6.