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Andreas Zanin
Analysis | December 8, 2020

KTM Commodity Weekly: A double top pattern raises red flag

Brent crude oil rallied to a six-month higher on Friday after OPEC+ agreed to extend the current output cut deal. In conjunction with Russia, the OPEC decided to voluntary adjust production by 0.5 mb/d from 7.7 mb/d to 7.2 mb/d. The ease of production was significantly lower than analysts expected. The reaction was positive, with Brent crude oil rallied to $49.78 but failed to hold the gains. It technically sounded bearish. 

But since April lows, the oil market rallied 213%, its best rally since 2011. Primarily driven by OPEC+ cuts in April and again in June. And the latest vaccine announcements triggered a massive change in demand dynamics. Even though the global recovery is on its way, we still believe we are still a few quarters away.

In its latest weekly note, Danske Bank said, “In our view, the continued high levels of COVID-19 cases mean restrictions are likely to remain through to early spring. Following the strong recovery, we saw in Q3, we believe the global economy will likely see a soft patch in Q4 20 and Q1 21 due to new restrictions and delays in new fiscal stimulus in the US. However, as a vaccine is for distribution widely in H1 21, we see brightening prospects for the global economy taking hold in Q2 and strengthening further in Q3 as pent-up demand is released”.

To start the week, the Brexit crude oil ended lower, down 1.15% on Monday trade. On the technical front, the past two weeks’ price action is painting a distribution pattern. To avoid this distribution pattern, the price should close above $49 initially. Flipside, the support zone between $46.80-$46.50 below here, focuses shifts to $43.75. On the Northside, the price is still facing resistance at a psychological level of $50.

Overall, in the face of new COVID infection, numbers could cap the near-term price. Crude oil prices can’t stand tall only with technical parameters.

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

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