Oil Ends a Furious October
Brent crude was in high gear in October, ending with one of the most significant gains of the year. On Friday, the January contract closed at $113.43 per barrel, which represented a 13.6% gain for October and a fourth consecutive weekly gain. This came on the heels of an attack on a tanker off the coast of Iran’s Strait of Hormuz that reminded market participants about the potential instability of oil supplies. Goldman Sachs estimates that the possibility of supply disruptions represents approximately $27 per barrel in risk premium, therefore it is a risk-premium-based market. Ahead of the U.S. mid-term election and jobs data coming out next week, we need to create a chart for our Brent crude oil price forecast.
Start with benchmark data from the U.S. Energy Information Administration , and check our latest Brent technical outlook .
Walking Through the Brent Chart
Brent daily chart: moving averages, resistance at $118 and $120.88, support at $112.80, $106 and $100. Illustrative chart drawn to published levels; not live exchange data.
Amber candles show days Brent closed higher; charcoal candles show lower closes. The amber line is the 20-day moving average and the black line is the 50-day, and both climb steeply. Red dashed lines indicate where resistance will be found; these are the intraday highs for the expiring December contract at $118, and the current yearly high at $120.88. Green dashed lines indicate where support can be found; these include the previous breakouts at $112.80, as well as $106 and $100. At this time, the final candle is located slightly above $112.80 indicating that buyers are still protecting that bottom. The dotted arrows illustrate potential upward movements towards $120 and potential downward movements towards $106. In addition to illustrating potential price movement, note the lengthy rise on the left-hand side: prices have increased approximately 60% since their lows during the summer months around $71, and the increasing separation between both averages is indicative of strong but possibly overextended momentum.
What Is Driving the Price
In addition to that, there are three factors that will affect the market this week. One of those factors is supply politics. OPEC had said they were going to continue producing at the same level as before. As a result, if OPEC changes their mind, prices could change significantly and rapidly.
Second, the dollar and the Fed. Oil rallies feed inflation and rate-hike bets, as we explained in silver slipping as $112 oil lifted hawkish expectations and our Federal Reserve rate analysis . Third, equities: our study of oil, gilts and risk sentiment shows how crude shocks travel into stock indices.
Reading Risk, Not Just Price
A chart summarizes actions taken by individuals, not the certainty of those actions. The highest concentration of Brent’s largest candle clusters is located near its high point, indicating increased emotion in the market. Since emotional markets may rapidly reverse their course based upon positive developments regarding negotiations or the fading of concerns over shortages, a rational investor views each support/resistance level as a zone, understands that they will experience some form of loss (stop) at times, and does not put too much of their portfolio at risk on a single trading strategy regardless of how much confidence they have in that strategy.
Playbook for the Week Ahead
Simple is best. A daily close above $118 will put $120.88 in play and then the $125 area. If we get a daily close below $112.80 that suggests the breakout may be failing, we have $106 as the next target and $100 as the line that the bulls must hold. Since a single headline can drive oil up or down by multiple dollars, you should keep your position sizes small and consider whether you want to trade events.
The monthly outlook from the International Energy Agency is a useful reality check on supply and demand. This is general information, not personal advice.
FAQs
What is the Brent crude oil price prediction for the coming week?
Predicting oil prices will always be a challenge. In terms of technical analysis, bulls have an eye on $118 and the $120.88 year high. Bears have their eyes set on support levels of $112.80, $106, and $100. A daily close above or below those levels will give traders an indication of who is currently winning.
Why did Brent rise so much in October?
The price of Brent crude oil increased by 13.6% during the month of October due to traders pricing in supply risk as a result of an attack on a tanker near the Strait of Hormuz. Goldman Sachs has stated that the risk of disruption will add approximately $27 per barrel, therefore, a large part of the increase in the price of crude oil is attributed to a risk premium, which can decrease significantly if there are positive developments with respect to discussions.
What are the key support and resistance levels for Brent?
The resistance levels for this stock sit at $118 and $120.88, with $125 sitting above them. On the other hand, support levels sit at $112.80 (the prior breakout level), then $106, and finally $100.
Is Brent crude a good trade right now?
This is a quick, headlines-based marketplace. Therefore, limit your position size to be small and utilize stop losses. This article is intended for educational purposes only and does not provide investment advice.
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