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Brent due for technical pullback after OPEC+ shocker?

OPEC+ has stunned markets once again!

The alliance of oil-producing nations announced an unexpected supply cut of over 1 million barrels per day starting in May.

And as we know, when supply is lowered (ceteris paribus: all else equal), prices then rise.

And sure enough, Brent, the global benchmark for oil prices, surged by 6.5% on Monday – its largest single-day advance in 12 months!

And it’s adding to those gains today as well (Tuesday, April 4th).

Brent due for technical pullback after OPEC+ shocker?

From a technical perspective, Brent has now broken above the 23.6% Fibonacci resistance level from Brent’s March 2022 through March 2023 descent.

Oil bulls may well aim for the early-March cycle high at $86.52 as the next target.


What does the unexpected OPEC+ supply cut mean for oil prices?

The most obvious signal from this early-April shocker by OPEC+ is that the alliance would rather see prices back within the $80 - $90/bbl range that Brent adhered to between late-November and mid-March.

Recall how OPEC+ stood pat on its production levels during the months leading up to this recent surprise decision.

But once Brent fell through that range and touched a 15-month low, that was enough to spur OPEC+ into action.


Surprise OPEC+ cut allows oil bulls to shrug off disappointing data

This unexpected announcement over the weekend has even been enough to offset some of the downcast data out of the world’s two largest economies so far this week:

  1. China’s March manufacturing PMI came in at a lower-than-expected 50, sitting directly on top of the number that separates expansion from contraction. That 50 figure is also lower than February’s reading of 51.6.
  2. The US March manufacturing PMI was revised slightly lower from 49.3 down to 49.2, edging the print further into contraction territory.
  3. The US ISM manufacturing data for March officially came in at 46.3, lower than the market forecasted print of 47.5.

Such lower-than-expected figures speak to the sluggishness in the manufacturing sectors of the world’s two largest economies, and does not portend well for global oil demand moving forward.

Yet, Brent has not only been able to hang on to all of yesterday’s gains, but also build on it at the time of writing.


Still, technical indicators suggest that Brent may be ripe for a technical pullback.

Referring to the chart above, note how in recent months, Brent has tended to pull back when its 14-day relative strength index (RSI) touches the 60 mark (refer to vertical blue dashed lines in above Brent price chart).

And that 60 line is below the textbook threshold of 70 which typically denotes “overbought” conditions.

Hence, with the 14-day RSI now at its highest since June 2022, while inching closer to the 70 mark …

that suggests that conditions may be ripe for a near-term pullback, if recent history proves to be a sound guide.

Also,, looking at historical data compiled by Bloomberg, Brent has tended to relinquish such sudden price spikes in the 20 days after making an initial session open of greater than 7%.

Technical indicators suggest Brent may be ripe for a technical pullback


In fewer words, Brent may give up recent gains over the days and weeks ahead, if historical price action is repeated once more.


And there are some key data releases over the rest of this week that may provide the fundamental spark from Brent’s immediate moves:


  • Wednesday, April 5th: EIA weekly crude inventories

In the latest data, US crude stockpiles saw a drop for only the second time so far this year.

Another drop may point to robust demand for crude, which could underpin Brent’s recent gains.


  • Thursday, April 6th: Germany February industrial production

Markets are now forecasting a month-on-month decline of 0.1%, in contrast to January’s 3.5% expansion.

As for the year-on-year comparison, February is expected to show a deeper drop of 2% compared to January’s 1.6% contraction.

Further signs of waning factory activity for the Eurozone’s largest economy may prompt oil prices to unwind some of its week-to-date gains following the OPEC+ shocker from over the weekend.


  • Friday, April 7th: US March Jobs Reports

The US is forecasted to have added 240,000 new jobs in March, with the unemployment rate holding at 3.6%, while wage growth is expected to tick higher to 0.3% compared to February.

A better-than-expected nonfarm payrolls report, perhaps by way of a higher-than-expected headline number, or a lower-than-expected unemployment rate, or faster-than-expected wage growth, may however drag oil prices lower.

After all, traders and investors are only all too aware that such resilience in the US jobs market risks further underpinning still-stubborn US inflation, thus potentially inviting more demand-destroying rate hikes by the Federal Reserve.



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