Monday, June 4, 2012

Brent hitting 16-month low

After the huge fall on Friday Brent continued its declining trend today as well and reached USD 95.63. It was in January 2011 when the price last time was at this level.

What are the reasons behind this movement?

- Looking at the supply side, the tensions with Iran seem to calm down now (although the risk of recrudescent conflicts is still there).
- On the demand side last week’s poor macro data indicate that weak economic growth cannot support oil prices. After the publication of US job data on Friday Brent started to decline sharply and fell below USD 100 and could not recover. Besides of the USA and the EU, China is also sending signs of a slowing economic growth.
- Consequently, stock piles are at a 22-year high.
- Parallel with growing concerns regarding the euro zone, the USD gained momentum which is negative for the Brent denominated in this currency as it becomes more expensive in other currencies.

The Relative Strength Index (RSI), which shows if an instrument is overbought or oversold (values below 30 are signs of being oversold, above 70 overbought) stands at 15.8 indicating that the Brent is oversold. Unless it manages to climb back above USD 100, however, the Brent price can fall further to USD 80, which worked as a strong resistance level in 2009-2010.

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