Oil prices started the week on a strong footing, buoyed by widespread investor optimism as market participants shrugged off coronavirus-related concerns even as the number of cases continued to rise in some countries over the weekend.
Brent crude climbed to nearly two-week highs around $43.70 but has retreated since then, changing hands just above the opening levels during the European hours. Despite optimism prevails in the market, traders remain indecisive these days, with the upside potential in Brent being limited.
On the one hand, upbeat economic updates fuel hoped of a recovery from the pandemic and thus of a more rapid surge in energy demand globally. As a reminder, the latest employment data out of the United States pointed to a strong recovery in the country’s job market. Also on the positive side, Saudi Arabia raised August crude official selling prices to Asia, which gave an early boost to the futures at the start of the day.
On the other hand, as coronavirus cases continue to surge globally, worries about the outlook for the economy persist, capping the bullish momentum in the oil market. Against this backdrop, it looks unlikely that Brent will make a decisive break above the above-mentioned local resistance in the near future. Furthermore, a downside correction could take place instead as the futures look more attractive for profit-taking at the current levels.
In a wider picture, however, sentiment in the market could stay relatively upbeat if risk-on tone persists and the upcoming industry data out of the US (the API and EIA reports) surprise to the upside.
From the technical point of view, Brent needs to stage a daily close above the $43 handle so that to preserve the upside bias and continue its bullish attempts. If so, the futures could retarget the $44 barrier next. On the downside, the $40 continues to act as the key support as a break below it may send the prices to the 100-daily moving average.