Brent and Raw record the longest winning rally, What Now?

Oil prices have skyrocketed this year. Brent oil is up 20% to date (YTD), while crude has advanced 17% YTD. A large number of these benefits are behind a tight oil supply with OPEC, particularly from Saudi Arabia and Russia, and improving oil demand as economic growth marches towards new regularity. However, we are not yet out of the woods, and it looks like head oil prices could skyrocket. It appears that oil prices may be recovering.

Price of Oil

Brent oil prices are on track to record their biggest win since February last year – seven days in a row. Since November last year, when the price fell to $ 37.36, the price of Brent is up more than 62%. Similarly, crude oil is also up 74% from its November low of $ 33.64

The table below shows the longest rally for Brent oil since November 2020.

Reason to be wary of oil prices

While there seems to be nothing to stop oil prices from continuing the uptrend, investors need to be careful here. So far, optimism in the oil market is based on two factors.

First, investors largely believe that larger oil producers such as Saudi Arabia and Russia are closely monitoring oil supply. OPEC members also comply, to a large extent, with their agreed quota. There is little doubt that there will be any rift between Saudi Arabia and Russia. This led to a price war, and oil prices fell into negative territory for the first time in history.

Second, traders believe economic recovery is happening, with the global economy moving in the right direction as coronavirus vaccines continue.

However, coronavirus mutation is difficult, and pharma companies find it difficult to keep up with the emergence of new variants of coronavirus vaccines. In addition, we are still severely under severe coronavirus restrictions, and some countries, such as Germany, are still considering extending these measures until early March. Therefore, demand is likely to take some time to recover, particularly for the global economy to recover to its pre – Covid level.

Brent oil prices have already reached their pre-Covid price level, which is worrying. Speaking from a technical point of view, there is no doubt that oil prices have gone too far and too fast, and that means that there is a right to a refund. Putting a short trade on Brent would make sense to stop above yesterday’s high of $ 61.30 or at $ 62.44 – the previous resistance.

It is important to keep in mind that the move up has been strong for Brent, and there is a chance that it will be halted. At the same time, it is equally important to remember that prices cannot continue to move in this strong rise forever. So there is a table on the cards. If Brent prices start to lose momentum, the initial price target is near $ 57, which will still be well above the 50-day SMA on the daily timeframe. In terms of the risk-to-reward ratio, this is more than two to one ratio – meaning your reward is almost twice as much as your risk.

Conclusion

There is no doubt that oil prices have outpaced their recent trend, and economic recovery is nowhere near enough to warrant current oil prices.