Brent sell

Oil market remains weak despite the rise of the U.S. debt ceiling

29 May 2023 172
Oil market remains weak despite the rise of the U.S. debt ceiling

The main news of last weekend was that the U.S. leaders reached a preliminary agreement on the debt ceiling. This prevented a possible default in the world's largest economy. In our latest forecasts, we had described such a scenario as the most probable.


The oil prices have shown a weak growth in response. Prospects for further upward movement remain in question. As we have noted earlier, in case the U.S. debt ceiling is raised the Treasury will start borrowing money on the debt market to replenish the budget. The yields of the country's government bonds will start to rise, which will provide additional support for the dollar. Such dynamics of the U.S. currency will be adverse for the whole commodity market.


The restrictions imposed on Russian oil by Western countries have proved futile. Oil flows from Russia continue to reach the world market, but via longer and more complicated routes. Thus, there is no supply shortage, which could drive the oil prices up.


According to Kpler data, Saudi Arabia has significantly increased its purchases of oil products from Russia and their further deliveries to European countries. Since the beginning of this spring, there has been a sharp increase in diesel fuel imports from the Russian Federation to Saudi Arabia.


It remained the same in the first half of May. Russian supplies to the country reached the highest level since 2017, amounting to 191.2 thousand barrels per day.


Saudi Arabia continues to buy Russian diesel fuel despite restrictions imposed by the European Union. At the same time, it is also increasing its supplies of the fuel to the EU. This is evidenced by Kpler data.


According to the technical analysis, oil is in an uptrend. However, a rising wedge is forming, which is likely to break down. There is a little distance remaining to the upper boundary of the wedge, so it makes sense to go short on oil now. The lower boundary of the wedge at $76.0 will be the downside target. A stop-loss will be placed upon updating the local highs and exiting the pattern upward, which is the price of $78.7.


A decline in Brent crude oil:

Take profit – 76,0

Stop-loss – 78,7

This content is for informational purposes only and is not intended to be investing advice.

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