Brent oil price analysis for June 2020: is oil price up too high, too soon?

Oil prices started this week on a positive note. On Monday, June 15, signs of fuel demand recovery and OPEC+ agreement to prolong production cuts till August outweighed fears of the second coronavirus wave and another hit to the world’s economy. The WTI crude oil rose 2.37 per cent to settle at $37.12 per barrel, while Brent crude gained 2.5 per cent and traded at $39.73 per barrel.

Although the Brent oil price has more than doubled since the April low, analysts are divided as to what to expect from the Brent oil price in June 2020. Some see pretty strong indicators that Brent oil analysis could still expect significant gains ahead if we see a break above the $43.86 level. In this case Brent crude could even surprise us with a fresh high of $50.45.

From the opposite perspective, analysts at Goldman Sachs, for example, turn bearish on oil. They believe that the relief rally in oil may be coming to an end as oil market fundamentals remain bearish. They predict Brent crude slipping back to $35 in the short term.

Brent oil price analysis: has price gone too far up?

Lately, Brent oil prices have seemed trapped between some positive and negative commentary, driven by major Brent oil price news. Brent crude futures climbed above $40 per barrel on Tuesday as hopes of further oil production cuts offset concerns about the new outburst of coronavirus cases around the world. However, the question remains: are we set to see one more push higher for the price of oil?

Let’s have a quick recap on Brent oil price latest news:

Demand is up as lockdowns get lifted

We have seen the price of oil start to move higher as economies get back to normal. When lockdowns are lifted not surprisingly we are seeing an uptick in demand for oil, which pushes the price of Brent crude higher as well.

In its monthly report on Tuesday, the International Energy Agency (IEA) increased its forecast for oil demand for 2020. The agency expects oil demand at 91.7 million barrels per day in 2020, which is 500,000 bpd higher than its May forecast.

The EIA explained the rise by higher-than-expected oil consumption during the lockdowns, but still warned that the world will not get back to the pre-pandemic demand levels earlier than in 2022 because of the reduction in flying.

OPEC+ cuts extended through to August

According to EIA, oil supplies plunged by almost 12 million barrels per day in May, as the OPEC+ reduced its output by 9.4 million bpd. This month the OPEC+ members agreed to prolong their mutual commitments and cut of 9.7 million barrels per day through July.

The EIA also admits that US shale producers also cut back on drilling in order to recover from the collapse in oil demand.

Has price gone too far up?

On the negative side of the newsfeed, we may see that a second round of lockdowns from new cases of coronavirus infection in different parts of the world is still one of the major oil market concerns.

As the number of coronavirus cases exceeded eight million worldwide on Monday, with fresh outbreaks occurring in China and the United States, the threat of returning to stringent lockdowns gets more real. This may result in another drop in demand for oil.

Inventories show record build up

The US oil inventories data last week was a shock reading. According to the IEA’s report, the US stockpiles increased by 5.72 million barrels to 538.1 million barrels, the highest level since 1982.

However, it hasn't knocked the oil price back down too far. There is hope of a normal supply-and-demand balance in the price of oil towards the end of the year.

Brent oil technical analysis: oil price doubles from the April low

Let’s get back to the Brent oil chart analysis to see whether the recent Brent oil upward rally will continue, or plunge back to $35 a barrel as predicted by Goldman Sachs. Despite the negative commentary that the oil price has gone too far too soon, the rising trend we have seen over the last couple of months is still going.

The price has shown some support around $37 level with the 50-day moving average just below this level. It seems as if the market is trying to find support and get back to the highs again. If the price manages to regain the main bullish trend, it should close above 39.90 to confirm going up to $43.38.

On the opposite side, if the Brent crude price breaks down below $35 level, then $30 is the next support that traders can follow. The trading range on June 16 was expected between 37.00 support and 41.00 resistance.

Now let’s remind ourselves about the bigger picture on the daily chart. We can see Brent crude trading above $70 a barrel on January 8 and falling below $20 on April 22. Since then the price has clearly jumped back up and  more than doubled from those April lows.  

Taking a quick look at the indicators on the chart we can see that the Brent oil price crossed above the 20-day moving average in early May. At the moment it is still trading above that 20-day moving average, which is coming in just above $37.5 a barrel.

The RSI overbought and reached a peak just before that push to $43 dollars. As the market reversed it fell out of overbought territory at the moment.

Looking at the MACD down there, we still see it is positive. We had the buy signal back at the end of April at around $26-$27 per barrel and we have seen these two MACD lines starting to come together recently as we had some sideways trading. The price weakness from here meant we had a sell signal from the MACD, but of course these indicators aren't always right. We often get early signals at the market’s extremes, but today it seems that there is still an opportunity that the oil price squeezes higher.

If you would like a clear picture of how to make a trade on the Brent crude oil market right now, take a closer look at our detailed Brent oil price forecast and dissection of the current Brent oil price chart analysis in June 2020 in a short video by Capital.com market strategist David Jones.

Source: Capital

Read the latest issue of the OGV Energy magazine HERE.