Oil Prices are Climbing Relentlessly

Brent crude prices have seen a 3.2% increase this week, reaching $85.05 per barrel, which is very close to the 4-month high of $85.09. This level has acted as a robust resistance for the past two weeks. Maintaining prices above the $81.00-83.00 resistance since March 13 has paved the way for a target range of $87.00-92.00 per barrel. This upward trend has now become the primary scenario. However, before reaching this target, prices must surpass the significant obstacle at $85.09.

Investor sentiment appears optimistic regarding this upward trajectory, as evidenced by the $51.4 million capital inflows into the United States Oil Fund LP (USO) last week, following four consecutive weeks of outflows. Despite seemingly pessimistic economic indicators, such as the rise in unemployment in the United States to 3.9% from 3.7% in February and the Eurozone's largest industrial production slump since March 2023 at 3.2% MoM, oil prices continue to climb. Additionally, the latest U.S. inflation data, with CPI at 3.2% YoY (up from 3.1%) and Core CPI at 3.8% YoY (missing the 3.7% consensus), further complicates the economic landscape.

In this scenario, where economic cooling may occur without Federal Reserve (Fed) intervention due to high inflation, the same holds true for Europe and the European Central Bank, which are unlikely to implement interest rate cuts. Given these conditions, the rationale behind the climb in oil prices amid deteriorating economic conditions is uncertain.

Despite ongoing geopolitical tensions, such as the ceasefire in the Gaza Strip in the Middle East, which investors have become accustomed to, Brent prices have remained within the $81.00-84.00 per barrel range since February 9.

While recent data showing a decrease in U.S. oil inventories by 1.53 million barrels, compared to an expected rise of 900,000 barrels, could have influenced sentiment positively, it alone was not sufficient to establish a strong upward trajectory.

From a technical perspective, the window for oil price growth is expected to close by mid-March, giving way to a period of downside opportunities lasting until mid-May. Given the economic backdrop, a potential decline in oil prices from the $87.00-92.00 per barrel range could be swift and sharp.