Oil prices extend the rally on Tuesday and have exceeded the $39 handle in recent trading. Brent is nearing the $40 important level that could act as a barrier for bulls amid the overbought signals on the short-term timeframes. There is a possibility that the futures will see a bearish correction at this stage before another rally takes place. 

Oil bulls are driven by rising hopes for a more robust economic recovery from the coronavirus crisis, with the latest data pointing to a gradual pickup in business activity in major countries. Also, the market is supported strongly by expectations that the OPEC+ producers will extend the deal during a video conference due later this week in order to maintain stability in the oil market. However, according to the latest reports, Russia still hasn’t decided on its position on OPEC+ cuts. 

Of note, the dollar has been losing momentum nearly across the board on Tuesday, which adds to the upbeat sentiment in the oil market amid the prevailing risk-on tone across the global financial markets. On the other hand, the rally is somehow capped by lingering concerns over the rising US-China tensions over the Hong Kong issue. 

Brent crude extended gains to the $39.50 region, with the $40 handle coming into market focus. Once above this level, the futures could extend the rally towards the next target of the 100-daily moving average that comes around $40.85. a break above this barrier will arrive as a strong bullish sign. 

On the downside, the immediate support now arrives at $39. A daily close above this level is needed for a confirmation of the latest breakout and further bullish extension. Once below it, Brent crude may retreat below $38 as the current prices are looking fairly attractive at current levels. 

In the longer term, the futures may regain the $50 handle if the global economy continues to show signs of recovery while tensions between the world’s two largest economies deescalate. In the immediate term, however, the risk of a downside correction is rising. 


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