Expect a new downtrend in Brent crude
WITH the recent news on possible easing of output restrictions in the June Organization of the Petroleum Exporting Countries (Opec) meeting, oil tumbled hard on May 25. WTI and Brent crude oil fell as much as 4.4 per cent and 3.2 per cent respectively. Both Russia and Saudi Arabia mentioned that they are likely to add to production output in H2 2018 to pick up the slack from Venezuela and Iran.
Interestingly, the US$80.00 psychological round number resistance area appeared to be a major roadblock for the bulls for Brent crude oil. There were two major rejections off the US$80.00 round number in May, which led to the current selloff. Thus, we expect the US$80.00 round number to be the immediate top for Brent crude oil and for a new downtrend to begin as the long squeeze unfolds.
Currently, the net speculator positioning in oil futures are still at a record high, suggesting the crowd is still extremely long oil. Historically, the net speculator positioning provides a reliable contrarian signal when the positions are at either extreme.
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