Brent crude oil ended down ahead of this week’s OPEC+ meeting. As we noted last week, the price has been developing a toppish pattern within an ascending wedge pattern.

Since early June, the price is facing resistance between $43.35-$44.00 levels. As long as Brent trades below the given zone, the price may test a support at $41.30 and $39.70.

Last Friday, the IEA released its monthly oil market report.  The IEA Oil Market Report (OMR) is one of the World’s most authoritative and timely sources of data, forecasts and analysis on the global oil market – including detailed statistics and commentary on oil supply, demand, inventories, prices, and refining activity, as well as oil trade for IEA and selected non-IEA countries.

The agency revised down the global oil demand. According to the July report, global oil demand will average 92.1 MB/d, down by 7.9 MB/d versus 2019. This was a slightly smaller decline than forecast in the last Report of 8.1 MB/d.

Source: Reuters

Looking ahead, Oil traders are waiting for Wednesday’s OPEC+ meeting to discuss its production agreement. Overnight Brent crude fell more than a percent to $42.25 a barrel, closed at the lowest point. Currently, the alliance is voluntarily reduced production by 9.7 MB/d through July 2020. It is the deepest cut ever agreed to by the World’s oil producers.

We believe the market has already priced in the easing supply cuts from August. Now accelerating daily COVID cases in the US is the key driver to the oil prices.  Expectations of economic activity coming back to normal quicker than it was assumed a few weeks ago. Some G10 economies appear to be rebounding faster than in other countries.

“There were reports over the weekend that OPEC+ will start to ease their production cuts from the 1 August, which is in line with the current deal. This would see the group reduce the scale of cuts from 9.6MMbbls/d to 7.7MMbbls/d” according to the ING commodities Feed report.

Looking into technical, traders can keep an eye on $43.35-$44 levels on the higher side. As long as Brent trades below the given zone, the price may test a support at $41.30 and $39.70. Flipside, earlier support has changed to resistance. The Brent oil price needs to cross and close above $44.25 to print another high at $46.00 an $49.50.

The near-term support finds at $39.70 below here focus on $37.00. A breakdown and close below $37 mean a distribution pattern starts the action that could lead to a decent pullback.

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

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