Crude oil prices have stagnated this week as investors assess the impact of the closure of the East-to-West pipeline on global supplies. Brent, the global benchmark, was trading at $105.68, slightly below this month’s high of $109.96. Still, a highly bullish pattern is forming, which may lead to a strong bullish breakout.
Crude oil price falls as Saudi Arabia looks for ways to boost supplies
Brent and the West Texas Intermediate (WTI) have wavered this week as investors assessed reacted to news that Saudi Arabia was seeking to boost supplies. The country is considering conducting ship-to-ship transfers near the Gulf of Oman.
The country is doing that after Iran-backed groups attacked the East-to-West pipeline last week, a move that will reduce oil supplies by over 7 million barrels in the foreseeable future. Saudi Arabia has committed to repairing the pipeline and the terminals in the shortest time possible.
However, the reality is that the situation is more complicated than officials are implying. For one, even after repairs, the terminal may come under attack again.
Most importantly, President Donald Trump has warned that the US-Iran war will end after the midterm elections in November. This means that the Strait of Hormuz will continue to be closed by Iran and the US, affecting millions of barrels of oil.
Indeed, even before the attack on the East-West pipeline, Saudi Arabia reported the lowest oil exports in years. It exported just 3 million barrels of oil per day in March, its lowest level in nine years.
Another major risk is that Iran is said to be considering an “October surprise.” This is a situation where it ramps up its attacks against US targets in a bid to influence the election results. Its goal is to ensure that Donald Trump’s Republican Party loses the election by a large margin.
There are signs that China’s oil demand is starting to rise. Analysts estimate that China’s oil imports will rise by over 1.2 million barrels a day in the fourth quarter of the year, leading to a squeeze.
These dynamics explain why top analysts are warning of an oil price surge. Goldman Sachs warned that oil may retest the year-to-date high of $120. Other top analysts from companies like Citi and Bank of America have boosted their estimates.
Brent crude oil price technical analysis
Oil price chart | Source: TradingView
The daily chart shows that Brent crude oil price has rebounded in the past few months. It has jumped from $70.21 in July to the current $105.87. This rally happened as odds that the US-Iran war will end soon fell.
Brent recently crossed the important resistance level of $101.87, its highest level on July 23rd. It has remained above the 50-day and 200-day Exponential Moving Averages (EMA). Remaining above these averages is a sign that bulls remain in control.
Most importantly, oil has formed a bullish pennant pattern, which is made up of a vertical line and a symmetrical triangle. Therefore, the most likely scenario is that it continues rising as bulls target the key resistance level of $110. A move above that level will point to more gains towards $120.
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