Lagos — The focus on reduced production rates in Russia, and a more optimistic tone in US and other developed market indices helped crude break the downtrend that’s been in place since 15 January, with a mix of short covering and organic buying suggesting we may have seen a short-term low in place.
Increasing substance on tariff rates, as well as Trump’s strong rhetoric on the hostage situation has been digested well by the crude markets, with traders refraining from altering positions, as has been the case in the USD and US equity futures.
Of course, tariffs do have the capacity to impact demand for crude over time, which would have implications for future OPEC+ output decisions and could feasibly see the group further extended the current production quotas – however, attempting to model the impact on what we currently know, or what we don’t know remains a sizeable challenge, and given the Trump has shown a willingness to negotiate and to limit frictions, the visibility to act in the crude market is still low to really do anything in size.
Given the technical break of the downtrend, I see a high probability that price may by choppy in the near-term – that said, we’re currently seeing front-month crude testing Monday’s high of $76.23 (Brent) and with the bearish momentum flipping, a convincing upside break today would likely see those sitting in profitable shorts look to further cover, increasing the risk of a push to the 200-day moving average at $77.96. Tomorrow’s US CPI release and the weekly DoE crude inventory report also pose risk to the crude market.
*Chris Weston Head of Research at Pepperstone
