Crude oil price outlook: China’s intervention may not be enough

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Oct 26, 2021
  • Crude oil price is trading above $85 amid the ongoing energy crisis.
  • China's intervention to control coal prices may not be enough to cool the crunch.
  • Investors will also be keen on this week's US stockpiles data.

Crude oil price is trading above $85 amid the ongoing bullish outlook. The energy crisis has continued to boost the market.

crude oil price
crude oil price

Demand/supply dynamics

The ongoing energy crisis has continued to boost crude oil price. In its latest efforts to deal with the situation, the Chinese government plans to limit coal price movements. Additionally, the Middle Kingdom’s administration is keen on aiding miners boost the product’s supply.

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While the intervention will likely ease the crisis, it may not be enough to bring it under control in the short term. This is largely due to the unlikelihood for the country to reverse the existing ban on coal imports from Australia in the foreseeable future.

Prior to the trade tensions, Australia was the leading source of the coal used in China. The current coal shortage and overall power crunch is expected to buoy demand for crude oil especially with the expected harsher-than-expected winter in the Northern hemisphere.

In the ensuing sessions, crude oil price will also be reacting to the weekly US stockpiles data. In the previous release, EIA recorded a draw of 431,000 barrels compared to the forecasted build of 1.857 million. For the week that ended on 22nd October, analysts expect an increase of 1.650 million barrels.  

Crude oil price outlook

Crude oil price remains above the crucial support level of 80 mid the highly bullish outlook. Since the beginning of the year, Brent futures have surged by 68.84%. In October alone, it has risen by 9.18% while trading steadily above 80 for close to three weeks.

In comparison, it dropped by 40.46% during the same timeframe in the past year. In October 2020, the benchmark for global oil traded within a rather tight range while finding resistance at $43.75.

At the time of writing, Brent oil was down by 0.44% at 85.54. On a three-hour chart, it is trading above the 25 and 50-day exponential moving averages. Besides, the formation of an ascending channel points to further gains in the ensuing sessions.

I remain bullish on crude oil price and expect it to remain above the crucial level of 80 in the short term. Having reached and surpassed the target of 85, bulls will likely strive to retest 2018’s high of 87.01.

However, as they gather enough momentum to hit this target, Brent futures will likely within a range of between the support level of 85 and Monday’s high of 86.70. Below the channel’s lower border, a retest of the support zone at 82.50 is likely.

crude oil price
crude oil price
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