Continuation Rally Likely As Brent Pushes Past $50 On Stumbling Dollar And Nigeria Sabotage

Brent crude oil prices rose above $50 a barrel on Monday, lifted by a plunge in the greenback and supply disruptions in Nigeria, but further gains were capped by signs of recovering U.S. output.

Oil prices pushed higher on a sharp fall in the dollar on Friday, after weak U.S. jobs data sparked concerns over the world’s biggest economy, cutting expectations of a near-term cut in U.S. interest rates. A weaker dollar supports fuel demand in the rest of the world as it makes dollar-traded oil imports cheaper.

Oil prices were also boosted by attacks on oil infrastructure in Nigeria, which has already pulled the country’s output to over 20-year lows. The Niger Delta Avengers militant group has claimed responsibility for three new attacks on Nigeria’s oil infrastructure over the weekend, threatening to cut production to zero.

So far, supply cuts like those in Nigeria or Libya, have been offset by rising output in the Middle East, especially Iran, which has been ramping up its output following the end of international sanctions against it in January. Iran’s is returning to international oil markets more quickly than expected, which means it could soon hit its maximum capacity. Furthermore, analysts say the friendly atmosphere during OPEC’s last meeting Thursday indicates the group is likely becoming more unified, which may heelp eventually build an agreement on managing the demand and supply balance better.

However, signs of higher crude production in the U.S. have kept prices from advancing. U.S. energy firms last week added nine rigs drilling for oil for the second time this year, bringing the total rig count up to 325, as producers have cautiously increased activity following months of rising prices. The renewed gain in U.S. drilling activity fueled speculation that domestic production could be on the verge of rebounding in the weeks ahead, underlining worries over a supply glut.

For this week, investors will be watching China’s May trade data and the U.S. weekly report on crude inventories and production. Both are scheduled to be released on Wednesday.

brent d1

Fig. BRENT D1 Technical Chart

On the daily chart, Brent has been rising steadily since dropping to a 13-year low in February and is currently trading at 50.32. The uptrend seems to persist, as shown by the green trend signal arrow and the green SAR band under the price line. ADX of 26.33, combining with DI+ above the other lines, indicates strong bullish pressure. RSI (14) is at 64.87, close to the overbought territory. A long position is encouraged at the moment.

Trade suggestion

Buy stop at 50.71, Stop loss at 49.95, Take profit at 51.68

 

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