Brent rose to its highest level since October, only to pull back slightly.It signals an ongoing slight technical pullback, given that its 14-day relative strength index (RSI) had flirted with the 70 level, which denotes “overbought” conditions.At the time of writing, Brent is trading back below the psychologically-important $76/bbl line.
Still, from a technical perspective, Brent’s breach of its 100-day SMA for the first time since October could be interpreted as a bullish signal.
Why did Brent soar at the onset of 2025?
Brent jumped 1.73% on January 2nd, 2025 – its biggest one-day gain in a month (since Dec 3rd).
Brent bulls took delight in the 6th consecutive weekly drawdown in US crude inventories.
Furthermore, the closely-watched stockpile levels in Cushing, Oklahoma are holding around a 17-year seasonal low.
Can Brent climb much higher?Oil prices likely require a considerably rosier outlook for global demand to sustain these early gains in 2025.Yesterday’s release of the Caixin China manufacturing PMI which came in at 50.5, while still above the 50 level which marks expansionary conditions, was still below the market forecasted 51.7 figure.
In other words, China’s economy is still struggling to gain sustained traction in its post-pandemic recovery.
Add to that the following bearish supply-side factors, as outlined in our 2025 outlook:
The above-listed risks could spell further declines for oil prices over the course of the new year, or at least limited upside, especially if global oil demand remains weak.On the flip side, besides the opposite of the earlier mentioned supply-side risks, oil prices could see a boost if President Trump enforces further sanctions that crimps Iran’s oil output, which in turn rebalances the global supply-demand equation.
Mixed signals from the prosWhile our 2025 oil outlook remains bearish, there are conflicting signals across other market data:
(Source: latest energy survey by the Federal Reserve Bank of Dallas)
(Source: latest CFTC weekly data)
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