Brent crude breaches upside ceiling as demand firms

Energy markets are moving higher and it’s not just the oil price that has traders chatting. Chinese officials have been vocal in the media today saying the nation’s coal consumption is likely to peak at 4 billion tonnes. In the meantime, traders should familiarise themselves with BP’s most recent set of global energy statistics – always a good read with the link here. We’ll publish our note outlining the importance of Chinese coal policy in the coming days, for now our eyes are fixed on oil markets.

The Brent crude price has rallied above the US$105-115 per barrel range – an area which has held for many months now but seems to be breaking on the upside. Brent last traded at US$116.61 per barrel. The breach above US$115 seems to be part of a large upward trend and so far the key swing producers who regularly talk up supply – namely Saudi Arabia – have been quiet.

Saudi oil production has been a key global contributor which we have spoken about on many occasions in the past. It’s unclear just how much leverage Saudi Arabia has in increasing supply and whether it can supplement its words by action. See our previous discussions on the oil market dynamics by clicking here.

If Brent can hold above US$115 per barrel over the next few days and global equities continue rising then a new band might be established at US$115-120 per barrel. The last time Brent spiked above US$120 was in the first quarter of 2012 whereby the fragility of the rally saw it fall back below US$90 in the prevailing months. Any sort term pullback should see the 200 moving average at around US$108.80 providing strength. Oil has a self correcting mechanism – a n unsustainable rapid rise in a short period of time sees global demand soften and hence a sell-off eventuates, but this time around Brent seems like it is searching for a new, sustainable band which could be absorbed by global economies.

For now, the US$105-115 per barrel range seems to be breaking out – there will be many traders who have traded this range looking to re-evaluate their positions, particularly the shorts.