Brent crude oil price forecast after crashing below key support

on Jun 4, 2024
  • The price of Brent crude oil tumbled below an important support level.
  • The OPEC+ cartel decided to extend the supply cuts in its latest meeting.
  • The US published weak manufacturing PMI numbers on Monday.

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The Brent crude oil price crashed below a key support level as the market reflects on the latest OPEC+ news and US manufacturing activity. Brent tumbled to a low of $77.10 on Tuesday, its lowest swing since February 5th. It has fallen by almost 7% in the past 30 days and by 0.6% this year.

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Driving season and OPEC+ deal

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The price of crude oil came into the spotlight this week after the OPEC+ cartel decided to extend its supply cuts to 2025. At the same time, the voluntary cuts by eight of its members will be slashed starting from October, raising concerns about supply.

Crude price has tumbled because of the sunsetting of the voluntary cuts and the view that the ongoing supply cuts are not enough. Still, analysts at JP Morgan believe that these cuts will support oil prices in the coming months. 

Oil also tumbled after more data confirmed that the American economy was softening as the driving season kicks off. These numbers revealed that the manufacturing PMI tumbled to 48.3 in May. A PMI reading of less than 50 is usually a sign that a sector is contracting.

This report came a few days after the US published weak Q1 GDP data. According to the Bureau of Economic Analysis (BEA), the economy expanded by 1.3% in the first quarter, a big decline from the previous year’s 3.4%.

The performance of the US economy is important for the oil market because it is the biggest consumer. Data shows that the country consumes 19.6 million barrels of oil per day followed by China, India, Japan, and Russia. 

Oil has also tumbled because of the ongoing production boom in the United States. The US is producing over 13 million barrels of oil every day, the highest level on record. 

Still, some positive catalysts could pump prices higher. The US is buying millions of barrels each day to fill its reserves while the Chinese economy is bouncing back. Data released on Monday showed that the country’s manufacturing PMI rose in May. Beijing has also implemented some measures to boost the economy and the housing sector.

Brent crude oil price forecast

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UKOIL chart by TradingView

The price of Brent crude oil has tumbled to a multi-month low even as the driving season starts. It has crashed to a low of $77, down from the year-to-date high of $92. Oil has moved below the lower side of the ascending trendline that connects the lowest points since March last year.

The 50-day and 100-day Exponential Moving Averages (EMA) have formed a bearish crossover pattern. It has also plunged below the key support at $80.60, its lowest point in April. The Average Directional Index (ADX) has risen above 25, which is a sign that the trend is strengthening.

Therefore, the outlook for the crude oil is bearish, with the next point at $72.60, its lowest point on December 13th.

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