Oil price hits four-year high

Oil prices hit their highest levels – $81.20/b – in nearly four years on 24 September after Opec members rejected US President Donald Trump’s call to boost output.

Commenting on the news, Michael Burns, Oil and Gas Partner at law firm Ashurst, said: ‘Oil prices continue to climb and it would appear that Opec and Russia do not intend at this point to take steps to change course on outputs. It will be interesting to see any further impact Iranian sanctions will have on oil prices and whether any further rise leads to a change in the Opec/Russia view on output levels.’

Callum Macpherson, Investec’s Head of Commodities, elaborated: ‘Though Brent has traded over $80/b a few times this year, it had not closed the day over $80/b (ie the breaks over $80/b were on trading during the day). That is until [the night of 24 September] when the Brent front contract set an official closing price of 81.20 $/b – the first time it has closed over $80/b since 2014. This means we now, finally, have a meaningful break through $80/b.’

‘The question then arises as to how much higher it might go and for how long. Indeed, there is quite a bit of talk in the press about Brent hitting $90/b or $100/b. As we have not been at these kinds of levels for a number of years, it makes sense to take a long look back at the history of the price of Brent in search of some technical levels that might point to price levels that could be significant in the future.’ 

‘Looking back at the rally over the last three years we see an upward sloping trend-channel which has an upper limit that currently sits at around $85/b, rising to $88/b at the end of this year and $100/b at the end of 2019. The high of 2015, when Brent made an abortive recovery to $70/b, was broken at the start of this year, but might prove to be a support level if the market does turn lower. Meanwhile, the lower limit of that trend-channel also provides a support, though that is currently in the $60s. There is also a very long-term trend-line resistance formed from the all-time high in 2008 and subsequent highs in 2012 and 2014, which is currently at around $94/b, falling to $88/b at the end of 2019.’

‘What can we conclude from all this? It does seem that there is little to limit crude, from a technical point of view, from rising to the mid-$80s in the short term and the low $90s in 2019. If Brent breaks through the long-term trend-line resistance from the highs of 2008 however, then we are going into very different technical territory as this would be a break through a 10-year downtrend. On the other hand, the key near-term support for Brent is from the moving averages around $75/b and the 200-day average at $72/b.’