Crude Oil Compresses Near Key Support
Brent crude oil has been consolidating near a critical support level for more than two months. With the stage set for a decisive breakout, let’s explore what’s driving the market and where we could go from here.
A Fragile Geopolitical Backdrop
Although a ceasefire between Israel and Hezbollah was agreed last Wednesday, the environment in the middle east is far from stable. Reports of Israeli strikes on Lebanese targets earlier this week have kept tensions simmering.
However, the broader supply picture has eased. The International Energy Agency predicts an excess supply of over 1 million barrels per day in 2025, which has weighed on prices. On Friday, Brent crude closed at $72.94, and WTI at $68, with both benchmarks down over 3% for the week. This bearish tone has been reinforced by concerns over weaker demand prospects, as higher US interest rates appear less likely to be cut this month.
Adding to the mix, President-elect Donald Trump’s recent threats of 100% tariffs on BRICS nations have strengthened the US dollar. A stronger greenback makes dollar-denominated oil more expensive for other currencies, further pressuring demand.
The Technical Picture: A Triangle of Tension
On the weekly chart, oil prices have anchored around the March 2023 swing lows, which represent a key inflection point. September’s brief dip below this level saw buyers step in, and since then, the market has been stuck in a prolonged consolidation phase.
Brent Crude Weekly Candle Chart
Past performance is not a reliable indicator of future results
Shifting to the daily timeframe, the consolidation takes the form of a triangle pattern. Prices are effectively being ‘funnelled’ within an ever-tightening range, marked by lower swing highs and higher swing lows. Volume has steadily declined, which signals that the market is under compression and a significant breakout could be on the horizon.
Brent Crude Daily Candle Chart
Past performance is not a reliable indicator of future results
With this compression nearing its climax, two scenarios are in play:
1. A breakout to the upside: A long-bodied candle closing near its highs, accompanied by strong volume, would suggest the bulls are back in control. News of OPEC+ extending production cuts or easing dollar strength could catalyse this move.
2. A breakdown to the downside: A close below support would snap the current consolidation and likely trigger accelerated selling, particularly if concerns about oversupply in 2025 gain traction.
All Eyes on OPEC+
The upcoming OPEC+ meeting on 5th December will play a pivotal role in determining the market’s next direction. The group is expected to discuss delaying a planned production increase originally scheduled for January. An indefinite delay could ease some of the downward pressure on prices, providing a tailwind for any bullish breakout.
For now, the market is in wait-and-see mode, compressing further as traders position themselves for the outcome of this critical meeting. All eyes are on OPEC+ as the oil market braces for its next big move.
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