Brent Crude Oil Update: Roadblocks Ahead

Brent Crude Oil (BCO/USD) has been flexing its muscles ever since it breached resistance of $70 in April 2018. This enabled the pair to break out of the large inverse head and shoulders pattern on the daily chart. The price action signaled the start of the commodity’s uptrend.

However, six months into the uptrend and the market is beginning to sputter. It appears that Brent Crude Oil is due for a meaningful correction. The pullback may be key in keeping the bull run alive and helping the market breach two major resistances. Word of caution though: these resistances have stood the test of time. Bulls may need to give everything they’ve got and more to stand a chance in taking them out.

In this article, we show the short-term and long-term roadblocks faced by Brent Crude Oil.

Immediate Resistance on the Daily

Brent Crude Oil has grown by almost 25% since it took out resistance of $70 in April. In the commodity market, this is a very good haul in just six months. Many who bought the breakout might be thinking of cashing in. With such a strong move in a relatively short period of time, Brent Crude Oil should be up for correction.

Daily chart of BCO/USD

A quick look at the daily chart reveals that BCO/USD is extremely overbought. To make matters worse, the market is hitting the resistance of the broadening wedge. The buying exhaustion may significantly reduce demand while the resistance may increase supply in the market. This is a tried and tested recipe for a correction.

Major Resistances on the Monthly

While we expect BCO/USD to resume its uptrend after the pullback, the rally may be brief. Up ahead are two major resistances.

Major resistance number 1 of $90 has never been breached in the market’s history; it’s a downward sloping resistance. In the last ten years, bulls had six attempts to take out the resistance. Every single one of them failed. So if we follow the adage, “the trend is your friend”, then bulls will most likely fail in their next attempt.

Monthly chart of BCO/USD

Even if bulls somehow take out major resistance #1, there’s another major resistance waiting for them at $100. With how things are looking for Brent Crude Oil, it appears that there’s not a lot of upside potential from this point.

Projected Move

It is very likely that BCO/USD retreats once it hits resistance of $90. It might then rally once it touches support of $70, but it appears that it is all downhill from there. Based on historical price action, this scenario has the best chances of happening.

On the off chance that the market takes out major resistance #1, then it has a clear path to the next resistance of $100. BCO/USD will likely correct after it touches the resistance. It will then rely on the former major resistance #1 to act as its new support.

Projected move of BCO/USD

From this perspective, the outlook is not so rosy for BCO/USD. It appears that $100 is the maximum target for this bull run.

Bottom Line

Brent Crude Oil has gone up by almost 25% since it breached resistance of $70 in April. Six months into the bull run and the market is staring down at major resistance levels. These roadblocks have stood the test of time. Bulls may need to give everything they have and then some to keep the uptrend alive.

Featured image courtesy of Shutterstock. 

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.