Brent crude – Oil rally accelerates higher after OPEC monthly report

• Downside risks to the global economy remain
• Output restrictions from Saudi Arabia and Russia push oil market further into deficit
• Oil accelerates higher after brief consolidation

Oil prices are creeping higher again on Tuesday, with Brent trading around $92 despite there being a mixed view on the economic outlook.

As we heard from the European Commission yesterday, growth in the euro area is going to be relatively minor, with Germany struggling to avoid another recession.

The UK has shown a lot more resilience than anticipated but still faces recession risks and marginal growth at best. People are feeling a little more optimistic about the US, with last week’s services PMI backing that up, but even here there are significant downside risks. While China is a big unknown with efforts to stimulate the economy being targeted and far from guaranteed to boost growth substantially.

That said, one thing we’re guaranteed is supply to continue to be restricted until the end of the year at least following the recent announcement by Saudi Arabia and Russia. That has created a deficit in the market that is supporting oil prices, with OPEC forecasting that the shortfall will run at around three million barrels per day, accelerating the drawdown in inventories.

Momentum appears to be picking up again

The OPEC report gave oil prices an extra boost and that appears to have lifted the momentum indicators with it which could be a bullish signal if it continues.

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There’s no obvious resistance ahead of $100 which isn’t to say it will necessarily reach this level, or quickly, but last time it traded around here it was quite volatile between $90 and $100. An interesting level over the last year or so was $93.50 so it will be interesting to see how it trades around here again.

The late-August and early-September rally was quite powerful and if we have now seen a break higher after consolidation, it will also be interesting to see whether that momentum continues or it faces more resistance.

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