Oil Holding Near Highs

Crude prices are sitting just below last week’s highs as we kick off a key week of central bank meetings. Rapidly increasing interest rates have been a major headwind for oil prices over the last year and a half. Tighter financial conditions have blunted demand this year, with crude prices remaining broadly range-bound across the year-to-date. However, last week’s break above the bear channel highs suggests there is reason for bulls to be optimistic.

Shifting Central Bank Expectations

In light of the inflationary declines we’re seeing, the broad expectation is that central banks such as the Fed, ECB and BOE will step away from tightening programs this year. The Fed already paused rates last month (the first sign of a coming shift) but is expected to hike again this week, as is the ECB.  However, the market is now looking for both central banks to signal a forthcoming cessation of tightening, driven partly by the fall in inflation and partly by economic fears.

Bullish Outlook

If this week’s central bank meetings see the Fed and the ECB signalling a potential end to tightening in coming months, this should be a major driver for upside action in crude. With the recent OPEC+ production cuts underpinning the market also, a fresh drop in USD would be firmly bullish for crude here.

Technical Views

Crude

The rally in crude has seen the market breaking out above the 72.61 level and the bear channel highs. With momentum studies turned bullish, while price holds above this area, the focus is on a further push higher with 82.59 the next upside level to note.