Can “golden cross” save Brent bulls?

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></strong></p>
<ul>
<li>Brent’s 50-day SMA could soon cross above 200-day counterpart</li>
<li>However, other forces may negate bullish “golden cross” signal</li>
<li>Oil weighed down by risk of higher Venezuela/Iran supplies</li>
<li>Oil dropped on technical pullback, deteriorating China economy</li>
<li>Brent may yet return into sub-$80/bbl levels, while $88 offers strong resistance</li>
</ul>
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<h2>Brent’s 50-day simple moving average (SMA) is currently teasing its 200-day counterpart.</h2>
<p>Prices of the global oil benchmark are climbing at the time of writing as Brent tries to halt three straight days of declines.</p>
<blockquote><p><em>Traders typically see a bullish signal (a sign that prices will go higher) when the <strong>50-day SMA crosses above the 200-day SMA</strong> to form a <strong>“golden cross”.</strong></em></p></blockquote>
<p><img decoding="async" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/BrentDaily_5.png" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="dea81be7-fd92-4ea8-b9ae-30e1dee37bce" data-src="/s3-static/users/user16/BrentDaily_5.png" /></p>
<blockquote><p><em>The last time Brent formed a “golden cross” on the daily charts was back in <strong>late-September 2020.</strong></em></p></blockquote>
<p>After that previous episode, Brent went on to soar by <strong>more than 200%</strong>, going on to peak just above <strong>$130/bbl </strong>following Russia’s invasion of Ukraine.</p>
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<h2><em><strong>However, there are other forces at play that may offset a bullish signal from a “golden cross”.</strong></em></h2>
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<p>Here are <strong>4 reasons </strong>why oil prices have been falling of late:</p>
<h4><strong>1) US-Venezuela talks</strong></h4>
<p>The US is discussing with Venezuela about <strong>possibly lifting sanctions</strong> on the latter’s oil exports <strong>temporarily</strong>.</p>
<p>Keep in mind that Venezuela boasts of the <strong>largest crude oil reserves in the world</strong> (though its refining capabilities are limited).</p>
<blockquote><p><em>Should these sanctions be lifted, it risks sending out more crude oil into the world.</em></p></blockquote>
<h5><em>NOTE: Greater supply tends to translate into lower prices, all else equal.</em></h5>
<p>The Biden administration is dangling this carrot so that Venezuela would hold fair elections in 2024, while lower prices at the pump would also placate the US voter base.</p>
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<h4><strong>2) Iran’s exports surge </strong></h4>
<blockquote><p><em><strong>Iranian oil</strong>, which is sanctioned, has been making its way into <strong>China </strong>at the <strong>highest level in about a decade! </strong></em></p></blockquote>
<p>When China, as the world’s largest crude importer, is taking in such shipments, it lessens the need for China to buy oil from other producers, prompting depressed global oil prices.</p>
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<h4><strong>3) China’s waning recovery</strong></h4>
<p>Much has already been made about <strong>China’s stuttering economy</strong>, as wary consumers have heaped more pressure on China’s property sector, which in turn risk financial instability.</p>
<p>Oil markets are concerned about the sluggish demand levels in the world’s second largest economy, and also the world’s largest crude importer, which has led to falling oil prices.</p>
<h5><em>NOTE: Lower demand tends to lead to lower prices, all else equal.</em></h5>
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<h4><strong>4) Technical pullback</strong></h4>
<p>Brent bulls could do no better than the $88/bbl handle earlier this month, which makes sense given that that price region has capped Brent since last November.</p>
<blockquote><p><em>That peak also saw Brent’s <strong>14-day relative strength index (RSI) </strong>– another widely used technical indicator – breaking into <strong>“overbought” </strong>territory.</em></p></blockquote>
<p>That technical event signalled that Brent was indeed ripe for a pullback, and it duly did <em>(see chart above)</em>.</p>
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<h3><strong>Brent looks past positive catalysts</strong></h3>
<p>The above factors even prompted oil markets to shrug off signs that <strong>oil inventories worldwide</strong> are around a <strong>6-year low. </strong></p>
<p>Also, the Energy Information Administration (EIA) this week reported a larger-than-expected 6.1 million barrel drawdown in US inventories to reach its lowest levels since December!</p>
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<h3><strong>Where to next for Brent?</strong></h3>
<p>From a fundamental perspective, of course it boils down to the <strong>supply-demand equation.</strong></p>
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<p>Further declines in Brent prices may prompt Saudi Arabia and Russia to further crimp their oil shipments.</p>
<blockquote><p><em>Such supply cuts may then <strong>shore up Brent</strong> price and help them stay close to the <strong>$88.00 </strong>resistance zone.</em></p></blockquote>
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<p><strong>However, Brent may languish back in sub-$80/bbl levels </strong>if the Chinese economy continues to produce worrying signs, coupled with the risk of more oil supplies out of Venezuela and Iran to offset Saudi/Russia’s lowered shipments.</p>
<p>If further declines aren’t thwarted at the 50-day and 200-day SMAs, then the <strong>100-day SMA </strong>may then be called for support just below the psychologically-important $80/bbl mark over the near term.</p>
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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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