Apr Brent Futures started the week supported above $82/bbl.
The geopolitical risk premium has resurged as on Jan 26 a Trafigura ship carrying Russian naphtha was hit by Houthi rebels. This attack was the second of the day with additional reports of Houthis firing at patrolling US warships.
This tension was further contributed to by 3 US soldiers, killed in Jordan near the Syrian border this weekend, from a drone attack carried out by “radical Iranian-backed militant groups”, prompting speculation of retaliation.
The US GDP beat projections as it rose 3.3%, annually. The overnight index swap is pricing in a 53% chance of a cut with 138bp of cuts priced this year. Although soft landing talk bolsters confidence from investors it also comes with a stronger USD which can weigh on oil demand. From a technical standpoint, Brent futures’ RSI is not yet indicating overbought territory, sitting comfortably at 60, despite prices being above the upper Bollinger band. This shows room for further growth in the contract as the RSI is trending upward with open interest increased by 20% week-on-week.
With added geopolitical risk premium and the market receiving any US soft landing news well, we forecast Brent to trade between $84 and 85/bbl.
