KTM Commodity Weekly: Scanning for bullish factor

• Virus surges, sentiment dampens
• Oversupply and weaker demand
• Bearish technical indicators

Brent crude oil tank more than 3% on Monday trade and closed below the 200MA as growing COVID-19 cases in the EZ and US. As we noted last week, the price developed a double top and resumed its downtrend. The lower high pattern is clearly visible, which suggests a lower low might be possible in the coming days/weeks.

Three factors could cap the oil price in the near term, and these factors are very familiar to traders.

1. Sentiment dampen again: Record new COVID cases are resurging is the US and, in the EZ, means mobility issue could cap the demand. In EZ, 11,824 new cases and 38 new deaths in Germany, 15,622 new cases and 73 new deaths in Belgium, 17,012 new cases and 141 new deaths in Italy, 17,396 new cases and 93 new deaths in Spain, 26,771 new cases and 257 new deaths in France.

It is first-world countries that seem to be having the most difficulty containing the new wave. It is raging in France, the UK, Spain, and Italy again, and Belgium also has a very bad outbreak.

1. Oversupply: Libya’s National Oil Corporation resumes production. This latest move will pump to 1 million barrels each day within a month. The state energy firm lifted force majeure on exports from El Feel on Monday, Africa news reported.
2. Demand concerns: OPEC’s Secretary-General says rising COVID-19 cases may delay oil recovery. OPEC’s Mohammad Barkindo asked at the virtual India Energy Forum by CERAWeek if the second wave of the virus required any changes to OPEC+ strategy, said hopes earlier this year of a demand rebound had been disappointed, Money control reported.

Technically, the Brent crude oil price lost all the moving averages on the daily and weekly charts, suggesting bearish momentum remains for the next few days. Support exists at $39.50 and $38.90. A decisive breakdown below $38.90 could retrace back to $37.20 and $35.80 levels.

Flipside, if the price is moving higher, watch out for resistance at $42, $43, and $43.50. The daily RSI lacks momentum, and the oscillator has been remaining bearish.

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

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