Brent oil eases lower on “death cross”

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></strong></p>
<ul>
<li>Fed pivot, geopolitical fears have fuelled oil’s recent rebound</li>
<li>Brent’s 50-day SMA now crossing below 200-day counterpart</li>
<li>Such a “death cross” could signals declines ahead for oil prices</li>
<li>After the last “death cross” in Sept 2022, Brent fell by a further 21% through March 2023</li>
<li>Still, fundamental forces may offset potentially bearish technical signal</li>
</ul>
<h3></h3>
<h3>In recent weeks, Brent oil has enjoyed a rare bounce after making multi-month lows in mid-December.</h3>
<p>Recall on <strong>December 13th</strong>, the global benchmark for oil prices touched <strong>$72.33</strong>, a price last seen in July.</p>
<p>Since then, Brent has rebounded strongly and is now trading <strong>back above $80.</strong></p>
<p><img fetchpriority="high" decoding="async" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/BrentDaily_7.png" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="57df5ee2-6488-443e-9ecd-d76ad5ea9571" data-src="/s3-static/users/user16/BrentDaily_7.png" /></p>
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<h3><em>The rebound over the past couple of weeks appear to have been sparked by the Fed’s policy pivot.</em></h3>
</blockquote>
<p>With policymakers at the US central bank now forecasting <strong>several rate cuts in 2024</strong>, oil bulls are drawing comfort from the idea that those demand-destroying rate hikes triggered since March 2022 are now relegated to the past.</p>
<p>&nbsp;</p>
<h3>Middle East conflict further fuelling oil’s rebound</h3>
<p>More recently, geopolitical tensions in the Middle East have picked up once more as Yemen-based Houthi attacks on ships in the Red Sea disrupted global trade.</p>
<p>A multinational maritime task force, including the US, has been set up to protect commercial ships in the region.</p>
<p>On the back of this, Denmark’s Maersk said on Sunday it was preparing to resume operations on the Red Sea and the Gulf of Aden.</p>
<blockquote>
<h3><em>But US military strikes on an insurgent group in Iraq ratcheted up escalation concerns that could spark flashpoints in the region.</em></h3>
</blockquote>
<p>Warnings from Israel that the <strong>Gaza war could go on for many months</strong> also stoked fears.</p>
<p>The uncertainty of the general conflict and Iran’s possible responses mean markets may keep some sort of <strong>risk premium in crude prices. </strong></p>
<p>&nbsp;</p>
<h3>Demand side bolsters outlook</h3>
<p>Brent made gains of over 3% last week though trading volumes are thin amid ongoing holidays in some markets.</p>
<p>Further signs of easing US inflation in data released just before the holiday period reinforced expectations that the Fed will begin cutting interest rates early next year.</p>
<blockquote>
<h3><em>Policy easing by the Fed could potentially support global growth and the energy demand outlook.</em></h3>
</blockquote>
<p><strong>A weaker dollar</strong> would also provide possible tailwinds to the commodity complex.</p>
<p>&nbsp;</p>
<h3><strong>Technical Analysis: “Death cross” in play</strong></h3>
<p>The December dip in Brent crude didn’t quite reach major support from earlier in the year around <strong>$72.</strong></p>
<p>Since then, prices have moved up around 10% in total and are approaching the <strong>50-day</strong> and <strong>200-day simple moving averages (SMA). </strong></p>
<p>In fact, those two widely watched technical indicators are now crossing over with the 50-day moving below the 200-day simple average.</p>
<blockquote>
<h3><em>That means a “death cross” is forming and indicates a potential resumption of the multi-month downward trend. </em></h3>
</blockquote>
<p>The last time that Brent formed a “death cross” on the daily timeframe was back in September 2022.</p>
<blockquote>
<h3><em>After that last “death cross”, Brent went on to drop by over 20% when it reached an intraday low of $70.07 in March 2023.</em></h3>
</blockquote>
<p>To be clear, the dreaded gauge does not always predict lower markets, even if it is a red flag and caution prevails.</p>
<p>On the flip side, some market watchers believe a death cross can signal a bearish market has run its course and it could be a good time to buy.</p>
<p>&nbsp;</p>
<h3>“Bearish” technical signals may be offset by fundamental factors</h3>
<p>Beyond the potential cues from a looming “death cross”, oil prices may continue finding more near-term support from the supply-demand dynamics in global oil markets.</p>
<p>Over the <strong>short-term</strong>, Brent prices could be <strong>prevented from falling too far below $80/bbl </strong>by:</p>
<ul>
<li>a <strong>still-moderating</strong> <strong>US dollar </strong>on hopes for Fed rate cuts in 2024</li>
<li><strong>persistent fears of supply disruptions </strong>out of the Middle East conflict.</li>
</ul>
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<p><img decoding="async" class="size-full wp-image-54242 alignleft" src="https://www.investmacro.com/articles-analysis/wp-content/uploads/2014/07/Forex-Time-Logo.png" alt="Forex-Time-Logo" width="262" height="90" /><strong>Article by <span><a href="https://www.investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></span></strong></p>
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