TALKING POINTS FOR BRENT CRUDE OIL (LCOC1)

• The weekly crude stock decline is ineffective in dissuading crude oil bears.

• Brent receives welcome assistance when a key U.S. pipeline is shut down.

• The focus for the USD is on U.S. PPI and consumer sentiment.

FUNDAMENTAL BACKDROP: BRENT CRUDE OIL

Even if Brent crude oil prices were slightly higher on Friday, the price is still under pressure. Crude oil fundamentals, notably larger-than-expected drops in API and EIA weekly crude inventory statistics, need more to overcome global recessionary worries. The greatest crude oil leaks in around 10 years have also forced the U.S. Keystone pipeline to be shut down. The decline in supply is mostly to blame for the price of crude oil today.

Still, the deteriorating COVID situation in China is dampening expectations for a successful China re-open, which would theoretically result in a rise in demand for petroleum. With Russia still needing clarity over its reaction function, the EU’s G7 price restriction on Russian oil adds another element of uncertainty to the crude oil equation. Although they have made it clear that they would reject the price restriction, there has been no implementation of supply reduction, which might raise crude.

This places the discourse about the global downturn at the forefront of crude oil price constraints, and with more interest rate rises planned for next week, the effect on consumer demand and economic growth will be negative.

Ahead of the Federal Reserve’s interest rate decision next week, PPI and consumer sentiment in Michigan will be crucial from a USD viewpoint since Fed policymakers cannot give input due to the recent FOMC blackout period. The Fed is now split between dovish and hawkish groups, with the doves benefiting from softer inflation. In contrast, the hawks have more recently benefited from a tight labor market (NFP beat) and, more recently, the ISM services print. Despite December traditionally being a lower month for the dollar, the weakening greenback may be trying to rebound after the FOMC, which might impact crude prices.

Economic Calendar

TECHNICAL ANALYSIS

DAILY BRENT CRUDE (LCOc1) CHART -UNDATED

Daily Brent oil price movement indicates pressure on the 75.00 psychological support mark, but the Relative Strength Index (RSI), which is now in an oversold zone, may indicate diminishing negative momentum. This may encourage bulls, especially if U.S. GDP statistics come in below expectations and crude oil gains from the depreciating dollar.

Key resistance levels:

82.38
80.86
80.00

Key support levels:

75.00