Oil Outlook: Rising Tensions versus Saudi Price CutsConflicting Factors Cause Volatile Start to the Year
The global oil market faces a turbulent start to 2024, navigating a complex interplay of factors that have sent prices on a rollercoaster ride. Saudi Arabia's unexpected price cuts, causing a nearly 4% drop in Brent crude on January 8th, hinted at the world's largest oil exporter's commitment to maintaining market share.
Just days later, Houthi threats, coupled with US and UK military strikes in Yemen, briefly pushed oil prices above $80 a barrel on January 12th. The redirection of oil tankers from the Red Sea intensified uncertainty, challenging earlier assumptions about market stability.
Analysts are divided on the medium-term trajectory of oil prices. While some focus on softening global demand and robust US supply growth, attributing the decline since September, others underscore the geopolitical landscape's role in swiftly altering market dynamics. The recent surge, driven by Houthi threats, highlights the delicate balance between global forces and market sentiment.
Technical Backdrop: Wedge Starts to Form
In the midst of conflicting market forces, technical analysis emerges as a crucial tool to contextualise January's volatility.
The daily candle chart for Brent crude reveals a persistent downtrend, with prices remaining over 18% below their September highs. Anchored volume-weighted average prices (VWAPs) from the autumn swing highs act as dynamic resistance points as the trend continues downward.
However, having retested key support in December, we have seen prices start to carve out a small series of higher swing lows – ‘funnelling’ the market into a ‘wedge’ pattern.
We can use this consolidation pattern as a canary in the coal mine – a decisive break above the wedge could set the stage for change in trend while a break below could finally trigger long-held support to be breached.
Brent Crude Daily Candle Chart
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