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Andreas Zanin
Analysis | July 20, 2021

KTM Commodity Weekly: Taps turned on

Finally, it is happening. As expected, the Brent crude oil was rejected at the 200MA monthly and paused the three-month rally. The black gold started the week lower at $72.50.

Since April 2020 lows, the price has corrected between 8-18% (please see the chart below). The price has corrected nearly 8% so far from the latest peak, and 8-10% more fall is required to match the previous swings. In this case, $64 will be the next destination if $70 fails to hold.

A thick layer of support is located at $71-70.50 and $69.90. Below here, $64.50 and $60 exists. A move below $69.90 is required to confirm the short-term bearish signal, and on top of these factors, a further stronger USD is likely to apply brakes to the oil rally. The current bullish trend will truncate if the price closes below $69.90 levels.

What triggered the fall beyond the technical?

Over the weekend, OPEC+ confirmed that they prepared the stage to open the taps gradually. Selling triggered, and oil prices went down after the news hits the wires.

August December phase: 400,000 barrels per day from August to 2million barrels per day (higher than what it is now) by 2021.

“Adjust their overall production upward by 0.4 mb/d monthly starting August 2021 until phasing out the 5.8 mb/d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance,” OPEC+ said on Sunday.

The cartel also highlighted that oil demand showing clear signs of improvement, and OECD stocks were falling, as the economic recovery continued in most parts of the world with the help of accelerating vaccination programs.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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