How sustainable is Brent above $70.00? – UOB

Strategists at UOB Group gave their opinion on the recent rally in the barrel of Brent crude.

Key Quotes

“In recent weeks, two key positive factors managed to lift Brent crude oil above USD 70/bbl. First is the escalating geopolitical risk in the Middle East. Second is the on-going drawdown in excess global crude oil inventories due to the OPEC led production cut”.

“However, the strong rise in US crude oil production risks generating new imbalances. US crude oil inventory has started to grow again as rig counts jump above 800, while US crude oil exports is growing strongly. In addition, net long position in crude oil on NYMEX has now jumped to a decade long high”.

“Overall, we believe that once the geopolitical risk subsides, Brent crude oil may pull back and settle down in the USD 60 to 70/bbl range. Given the strong rise in US crude oil production, it is likely that WTI crude oil will continue to trade at a clear discount to Brent crude oil”.

“Our technical analysis of Brent crude oil price suggests that despite the break of a strong resistance level, a sustained upmove appears unlikely at this stage. Brent crude oil is likely to drift back down towards the rising trend line support currently residing at USD 68.5/bbl”.