Brent Is Struggling Without Positive Drivers

Brent crude is down 0.02% to $70.65 per barrel this week, testing the support range of $68.00–$70.00 per barrel twice but failing to break below it. This could indicate a potential recovery.

Large investors remain cautious, having observed the $70.00–$90.00 per barrel range for at least two years. Over this period, four downside attempts have failed, each followed by a rebound to $80.00 per barrel. Shorting oil remains a challenge. Last week, large investors sold United States Oil Fund (USO) shares worth $57.8 million following earlier sell-offs of $21.9 million, securing a 4–6% profit. This week, they are closing short positions by purchasing $21.6 million in USO shares, possibly anticipating that OPEC+ will step in to defend the $68.00–$70.00 support level.

OPEC+ has left its planned production increases for April unchanged, putting pressure on oil prices. However, Russia’s Deputy Prime Minister Alexander Novak indicated that these plans could change at any time. This creates a deadlock, as there are no clear upside drivers for oil. The American economy is slowing, and recession fears are rising, while traders hesitate to push prices lower due to potential OPEC+ intervention.

A new catalyst may be required to break this stalemate. Possible triggers include lifting sanctions on Russia’s oil sector following a ceasefire in Ukraine or tightening restrictions if Russia refuses to engage in peace talks. Iran remains a wildcard, with the potential to disrupt oil markets by blocking the Strait of Hormuz in response to U.S. pressure.

If the cooling U.S. economy is enough to break the $68.00–$70.00 support, Brent crude could drop to $58.00–$60.00 per barrel. However, a more likely scenario is continued trading within the $68.00–$75.00 range.

February U.S. inflation data showed a sharper-than-expected decline, raising the possibility of Federal Reserve rate cuts. A second inflation report, the producer price index, is due on Thursday. If it exceeds expectations, it may indicate that the economy is not cooling as rapidly as feared. However, if inflation declines more than expected, recession concerns could intensify. This is unlikely to significantly impact oil prices, which are expected to remain within the broad $68.00–$75.00 range.