Brent Prices May Return to an Upside Trajectory Targeting $100+

Brent crude prices increased by 1.2% to reach $88.35 per barrel this week, marking a rebound from the support level at $87.00 per barrel. The previous week saw prices diving by 4.6% to $86.30, but the Israeli strike on Iran’s airbase offset downward pressure from investors attempting to push prices lower.

The United States Oil Fund (USO) witnessed significant fluctuations in net capital flows amidst heightened geopolitical uncertainty in the Middle East. Last week, the fund reported net capital inflows of $301.7 million, the largest single-week reading since October 2023. However, during the first half of the week, net outflows of $282.7 million were recorded, the largest since December 2022. This volatility occurred as investors reacted to unexpected events in the region, hastily opening and closing long positions in response to developments.

As a result, oil prices are expected to remain within a narrow range of $87.00 to $92.00 per barrel for the foreseeable future. While global economic slowdown exerts downward pressure on prices, production cuts by OPEC and its allies, coupled with ongoing tensions in the Middle East, provide upward momentum. This current price equilibrium represents an 8.0% increase from the flat levels observed in February and March of this year.

Weak Manufacturing PMI readings across major economies in April have contributed to downward pressure on oil prices, indicating further contraction in these economies. Meanwhile, Israel's military operations in Gaza strip add to geopolitical uncertainties. However, unexpected data from the U.S. Energy Information Administration, reporting a drop of 6.36 million barrels in oil inventories against an expected rise of 1.60 million barrels, helped stabilize prices within the $87.00 to $92.00 per barrel range.

Looking ahead, a technical period favoring a decline in oil prices is expected to conclude by mid-May. Nevertheless, with prices firmly holding above the $87.00 support level, an upside scenario is possible, with prices potentially targeting $100 per barrel of Brent crude in the second half of May.