Weekly Commodities Review - 15 December

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Goldman Sachs recently downgraded its price target on Brent in Q1 next year to $95, down from $115 so this week we take a look at the technical picture on oil to see how this may correlate with the major technical levels.

The chart here shows the price action in Brent, and details how it posted a strong recovery from the 2020 pandemic lows. Posting a sharp move from $20, with spikes up above $135. As is so often the case after a major move like this price action then retraced around 50% of this move, as it traded back down towards $78.

Leading to the major question, over the long term are we heading back to the highs, or the lows?

During the retracement under $80 price action also broke the strong medium term bullish trend. While the 50% area holds this may not be a major concern. But it is important to highlight that any future 50% retracement break in conjunction with this trend break would increase nervousness. Without this however the outlook does still seem skewed to the upside.

Interestingly Goldman’s $95 price target coincides in the region of the 38.2% level at $92, which itself also coincides with the trend line break. So, there would appear to be both fundamental and technical reasons to see upside caps of around $92-95 for the weeks ahead. While moves much under $78 are needed to feel increased nervousness that the general positive trend from the pre-pandemic lows.

Leaving a cautiously optimistic fundamental and technical outlook on Brent for the weeks ahead, albeit with seemingly relatively tight upside caps.