Crude oil prices started to show some signs of a waning upside momentum following a strong rally witnessed since late last week. On Tuesday, Brent registered fresh more than one-month highs around $35.70, where the futures seem to have encountered local resistance. Nevertheless, the prices remain elevated and manage to stay close to the top of the current trading range.
It is possible that Brent will struggle from here as market sentiment started to deteriorate in Europe. After a strong rally in risky assets amid the coronavirus developments, stock markets turned sour as investors shifted their focus back to the rising US-China trade tensions. This risk factor may cap further gains on the oil market as well.
Should Brent fail to confirm a break above the $35 handle on a daily closing basis, the futures may switch into a corrective mode as the futures are already close to overbought levels at the current prices. In this scenario, the barrel may retreat to $34.40 and lower. On the upside, a successful break above the $36 barrier will open the way towards $37.
Of note, there are several risk factors for the market at this stage. First, oil traders continue to closely monitor developments in the US-China trade front. The latest rise in tensions between the world’s two largest economies suggests there could be more negative signals from this front in the days to come.
Also, investors are getting more cautious ahead of the Federal Reserve Governor’s testimony due later today. However, considering the recent fairly positive comments from Powell on the outlook for the economic recovery, it is possible that the statement won’t hurt risky assets this time as well.
Later today, the API reveals its fresh weekly data on crude oil inventories. If the stockpiles increase dramatically, the release may put some short-lived pressure on prices ahead of the official report by the EIA scheduled for Wednesday.