Brent (OIL) has been clearly gaining since the beginning of this week, continuing the rebound that occurred after the sell-off at the beginning of last week, which was related to the OPEC+ decision. We see that a potential bullish engulfing pattern can be forming on the weekly candlestick. Although it has been rather difficult to find a similar example of such a formation in the past two years, it is worth noting the long lower shadow of the last week's candlestick and the additional bounce off the 200-week moving average, which has previously been a bullish signal. If the rebound is to continue, the target will be in the range of 82-85 USD per barrel. However, it is worth remembering that the large head-and-shoulders formation might still be in play, and its invalidation will occur only after breaking through 92 USD per barrel.
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It is also worth noting that we have a very interesting situation on the Brent crude oil positioning. There has been a massive reduction in long positions and an increase in short positions in the market. The positions on ICE pertain to last week’s situation. Net positions are at their lowest since 2014. Although in the past, such a significant drop in positioning below the long-term average was a signal, it is worth noting that in 2014, when net positioning reached a local bottom, Brent crude oil dropped by another approximately 40-50% (oil was then in about the middle of the strong downward impulse). If such a situation were to repeat itself, oil could still fall by 13-16 USD, which would mean a range of approximately 60-65 USD per barrel. Such levels would be possible if OPEC admitted that it currently cares more about market share rather than prices and market stabilization. Therefore, this is not the base scenario.
However, it is worth noting that the number of short positions has fallen to levels from the end of 2023, May-June 2023, or the end of 2022, which generated a contrarian signal. Nevertheless, we would need to see a rebound in long positions in the next 2-3 weeks to have confirmation of a trend change in fund positions.
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