Brent crude oil price analysis: could bounce back to $90

Brent crude oil price pulled back this week as concerns about the Chinese economy continues. The price retreated to $81.65 this week, down from this month’s high of $87.10. Despite the retreat, oil prices have jumped by over 16% from the lowest level this year.

China slowdown concerns

There are two main things moving crude oil and other commodity prices. First, there are concerns about the Chinese economy. Recent economic numbers showed that trends in China are not good. The youth unemployment rate has risen to the highest level in decades.

Additional data showed that the American industrial production, fixed asset investments, and exports have slumped in the past few months. As I wrote here, China’s economic challenges can be simplified into 5 Ds: demand, decoupling, debt, and demographics.

China is an important market for the oil market since it is the biggest consumer. The most recent report by Vortexa shows that oil demand for this year may have peaked even as onshore stockpiles jump. While the country’s demand has risen, most of these purchases have moved to stockpiles.

The other key concern is about the Federal Reserve and the US dollar index (DXY). Recent data shows that the DXY index has jumped to $104, the highest level since June this year. Historically, the dollar has an inverse relationship with crude oil prices.

The dollar has jumped as investors embraced a risk-off sentiment. This view is also supported by the soaring bond yields and falling stock prices.

Still, analysts believe that crude oil price will rebound in the coming months. They argue that demand remains significantly high while supply by OPEC members constrained. In a recent note, Amrita Sen, a well-known analyst, expects Brent to jump to $90.

Brent crude oil price forecast

Crude chart by TradingView

The daily chart shows that the Brent crude oil price has retreated in the past few days. This retreat started when the price reached the important resistance level at $87.75. This was a crucial level since it was the highest point on April 12th and January 24th. In most periods, assets tend to pull back after hitting a key resistance point.

On the daily chart, crude oil remains above the 50-day moving average while the Relative Strength Index (RSI) has dropped below the neutral point at 50. Therefore, the outlook for oil is bullish, with the initial resistance to watch being at $87.75. A move above this level will see it jump to $90.