Crude oil price traded lower on Tuesday after slightly rebounding in the previous session. A rebound in the US dollar and mixed Chinese economic data are largely behind the decline.
Fundamentals
On Monday, crude oil price erased some of its losses; driven largely by supply concerns. This is after Saudi Arabia and Russia, top crude oil exporters, reaffirmed their commitment to maintain their ongoing supply cuts until the end of the year.
Saudi Arabia intends to continue its voluntary cuts of 1 million barrels per day (bpd) in December to maintain its output at around 9 million bpd. At the same time, Russia will maintain its export reductions of 300,000 bpd till the end of the year.
The resultant supply concerns were also heightened by the US’ plans to purchase an additional 3 million barrels of crude oil to boost its Strategic Petroleum Reserve (SPR). However, those concerns have largely been offset by the rebounding of the US dollar.
After dropping to a 7-week low of $104.84, the dollar index rose to $105.64 as at the time of writing. According to some Fed officials, the market’s expectations that the central bank has paused on its rate hike cycle may be rather premature.
Besides, data from the leading importer of crude oil and second-largest economy – China showed that its exports dropped lower than expected in October. Besides, its trade surplus was at its worst in 17 months. Granted, its imports grew higher than expected. The latter component highlighted an increase in demand as the government rolled out additional stimulus measures.
Brent crude oil price action
Brent oil dropped to a one-month low on Tuesday; trading at $83.84 as at 08:26 AM GMT. A look at its daily chart shows the 25 and 50-day EMAs intersecting at around $87.90 with signs that a death cross may occur. The aforementioned formation occurs when the short-term MA crosses the medium or long-term MA to the downside.
In the ensuing sessions, I expect the aforementioned level of 87.90 to be a major resistance level for Brent crude oil price. At the moment, the bulls are keen on defending the support level of 83.60.
At its current level, I am of the opinion that it will rebound to face resistance at 85.29 before gathering enough bullish momentum to rally further towards 87.90. On the flip side, the bears may have an opportunity to push the asset to 82.15; a level last hit on 24th August.
