Technical analysis

Oil on the rise, are your worries over?

The increase in oil prices, with Brent experiencing growth in the last week due to several factors, contrasts with the concerns that, just under a month ago, were plaguing the energy raw materials sector.
The futures market, in addition to showing a first hint of de-stabilization of the level of price volatility, highlights the achievement of significant maximum zones, also from a technical point of view.
While many are wondering about the sustainability of the current rally, economic and geopolitical news already seems to influence trading volumes and, consequently, also the price of black gold.
What pushes the price of BRENT up? A first reason is certainly the exceptional resilience of the American economy, which not only managed to avoid what had been predicted as "the most announced recession ever", but also recorded growth of 3.1%, according to data published by the Department of Commerce.
The price of oil is strongly influenced by consumer spending, and in the United States, consumer confidence has remained high thanks to a strong job market.
Consumption continues to grow, supported by a positive savings rate that still seems to reflect post-COVID-19 dynamics.
This naturally fuels expectations related to fuel demand and the futures market currently seems to be betting on precisely this.
The implied volatility of oil options, which shows an increase in the number of hedging trades against possible increases in the price of black gold, confirms this trend.
In this context, however, the reason appears to be geopolitical risk, given that, after the Hamas attacks on Israel and the complications related to trade in the Red Sea, it is difficult to predict the consequences on the energy market.
The price of oil interrupts growth: is the global surplus to blame? According to many, the positivity of the Brent oil price could soon be put at risk by some negative dynamics, primarily concerning supply issues.
The increase in prices recorded in the last month has in fact recently encountered an obstacle, generating the first fears and raising questions about the sustainability of the growth in oil prices.
These concerns particularly arise when considering the global surplus of crude oil, which impacts global supply dynamics and could partially offset bullish futures market expectations.
The price of Brent oil, after reaching $83, interrupted its strong upward trend that has characterized it since the beginning of the year, leaving room for the first declines.
This week, it seems to start drawing a first red candle on the black gold weekly chart.
From a chart point of view, the price of oil has not yet reached an overbought zone, so many technical analysts are talking about a correction rather than a true trend reversal.
It is important, however, to remember that the price of black gold depends today more than ever on variables external to the graphic analysis.

Author: A.W.M.

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