Market Overview

Brent crude prices bounced from the bottom of $16 and settled around $30 per barrel, which seem to be a physiologically strong resistance level. This balance may sustain as many contrary factors affecting crude prices.

From the demand side, there is a positive factor of a certain easing of restrictions imposed against the pandemic in many countries. Signs of business activity are emerging andthe driving season is close to opening. But there are also worries that the recovery in demand will be slow and it will not reach 30% of its fall or 30 million bpd.

The supply side is also full of contradictions. The OPEC+ deal to cut the production by 9.7 million bpd has been running since May 1. Saudi Arabia, Kuwait, and United Arab Emirates announced additional production cuts by 1,18 million bpd on top of the deal. The US has cut production by one million bpd already. But the pledged cuts and the current reduction of crude output are certainly not enough to balance the demand while the reserves of oil in storages are still rising. Reuters, citing an unnamed source in OPEC, reported that OPEC+ is looking to extend the existing 9.7 million bpd cuts past June instead of scaling cut backs to 7.7 million bpd from July under the existing deal.

Financial markets have an uncertain tune too, and this affects the "black gold" prices. The appetite for risk is changing to caution and pessimism. Markets are under pressure from renewed trade and geopolitical tensions between the US and China as the United States Senate brought in a bill to sanction China on the covering up of important information about the origin or spread of the COVID-19 infection.

There are no new important issues that are likely to affect the oil market this week. However, weekly data on crude inventories in the US, which is to be released on Wednesday evening and the statement by Federal Reserve's Chair Jerome Powel may add volatility to oil prices.

Technically the correction from the peak price of $36.3 per barrel in April to the current level of $30 per barrel corresponds to the Fibonacci retracement level of 76,4% on the daily timeframe. This level may serve as a support for Brent crude prices. If this support level is broken, this could mean prices may fall to the beginning of the impulse at $26-$26.5 per barrel.

This week, with contrary factors affecting the price of oil, is expected to keep prices in the existing trading area of $28-$32 per barrel of Brent crude benchmark.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.