Oil finally breaking lower

At Tricio we use charts in order to look for insight into market sentiment and investor behaviour. We have been looking for ICE Brent crude oil prices to fall for some time. The last blog that we wrote about this was summer of 2023. We cover ICE Brent crude oil in our Monthly Insights publication and occasionally in our Focus and Weekly Talking Points publications. In a nutshell, a drop to $65/bbl. and then $45/bbl. has been favoured for some time. The $65/bbl. target was hit today, so on one hand, hurrah! And on the other, what took so long?

The latter is best seen as a combination of events. OPEC+ has been trying to hold the line through production cuts. The Russian attack on Ukraine disrupted supplies and saw prices rise on the fear of bigger disruptions. Output from other producers has been curbed through sanctions as well. On the other hand, US energy production has ballooned and they are the biggest producer of crude, with the government urging producers to pump more with little regard to the price of crude, it seems. The big kicker though is that expectations of global growth have been knocked down sharply by the imposition of global tariffs last week by the US. How countries respond looks likely to have negative impacts on growth expectations as well.

Is it all doom and gloom now? Not really. The chart of the futures strip going out to December 2028 shows a market that is pricing in negative risk for the coming year, but is hoping for a recovery. Looking at this mechanically though, prices are sloping down in the nearest contracts as the market doesn’t know what will happen, but knows that economic activity will probably slow sharply if the current tariff policies extend in time and/or scope. However, storing oil has a cost and interest rates are relatively high, so it makes sense for the strip to be in ‘contango’ from mid-2026 on.

The price charts below show a weekly chart with 13-week and 50-week moving averages and a monthly chart at the bottom with 12-month and 60-month moving averages. The price objective on the top chart is for a swing towards $50/bbl. and $45/bbl. There is a chance for a bigger tumble towards $30/bbl. and below of course. The bottom chart is a reminder that if global growth comes off the boil, oil prices fall hard. Brent was below $10/bbl. a few decades ago! See if upswings hold below the $70/bbl. to $75/$78 per bbl. area now to keep the focus on the downside.