Brent Oil Trades in Free-Fall Mode

Brent crude oil tumbled yesterday, as talks between the government and Congress Democrats over a fresh coronavirus-aid bill resulted in no progress, adding to fears about worsening demand for energy without any support for the economy. The tumble continued today as well, as news that US President Trump was tested positive for Covid-19 triggered a broader risk-off market reaction. What’s more, according to a Reuters survey, crude supplies from OPEC rose by 160k bpd in September. The increase came mainly from Libya and Iran, which are exempt from the curbs decided by the organization and its allies.

From a technical standpoint, the price continues to trade below the downside resistance line drawn from the peak of August 31^st, while today’s tumble has taken the black liquid below the key support area of 39.10, which stopped the price from moving lower between September 8^th and 18^th. In our view, these signs paint a negative near-term outlook.

We believe that the dip below 39.10 may have opened the path towards the 38.05 zone, which is marked as a support by an inside swing high formed on June 15^th. If that zone is not able to stop the tumble, the next key area to consider may be the 37.10 territory, marked by the low of the same day.

Looking at our short-term oscillators, we see that the RSI just touched its toe below its 30 line and continues to point south, while the MACD lies below both its zero and trigger lines, pointing down as well. Both indicators detect increasing downside speed, which supports the notion for further declines in the short run.

In order to abandon the bearish case and start examining whether the bulls have stolen the bears’ weapons, we would like to see a strong move above 42.55. This would already take Brent above the aforementioned downside line and may initially pave the way towards the peak of September 18^th, at 43.65. If the bulls are not willing to stop there, we may see them hitting the 44.20 barrier, marked by the high of September 4^th.

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