January 5, 2022 15:55:28
While FX volatility is currently subdued, the oil market is enjoying a strong start to 2022 after prices spiked lower a month ago. Omicron fears took Brent prices down from around $82 to the early December low below $66. But crude has recovered well and has rallied more than 10% since mid-December.
Global demand concerns have eased on the growing belief that Omicron is more manageable and less deadly than previous variants. Yesterday’s OPEC+ decision to maintain output increases from February also adds more support to the demand story going forward.
That said, we note that governments have reacted differently to rising infections. Much attention is on Asia and especially China’s zero Covid policy. Questions are mounting around how this can be maintained as cases flare up.
Rebound continues through resistance
After the two recent selloffs pushed prices below the 200-day SMA, Brent prices have moved above this indicator and will now rely on this as strong support, currently around $74. Prices have also advanced above the 100-day SMA, and the long-term trendline from the pandemic low at $77.63, which will act as near-term support.
Most recently, prices have been tracking sideways around the 50-day moving average as they paused for breath after the strong rebound. This consolidation was a continuation pattern (“bull flag”) in the longer-term uptrend. Today’s breakout higher needs to close above $80.22 to see more upside. Bulls should then target $81.51 and $82.98, ahead of $85.48 and the cycle high at $86.68.
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