Brent oil has rallied over 14% since Wednesday’s OPEC production-cut announcement and traders are unsurprisingly asking whether this burst higher has further to go.
With prices now probing a key resistance zone, price action during the next two sessions will offer a great indication as to whether Brent’s 2016 uptrend has legs.
The below chart shows Brent’s 3 year weekly candle chart.
The chart highlights that a resistance zone between $52.5 to $54.3 has been in place for sometime. Over the last 15 months, prices have hit but failed to break above this zone on four different occasions.
Battle Ahead
With prices bursting higher into this zone, a battle between the bulls and bears will likely ensue. Clearly, short momentum lies firmly in favor of the bulls and many believe OPEC’s production cut will usher in a higher oil price going forward. Let’s not forget that it's the first OPEC production cut since 2008.
If prices break and hold above 54.3, that would represent a change in market structure and lay the foundation for a long-term uptrend to take shape.
At the minute, prices are at a point of inflexion. Moreover, with Brent implied volatility remaining elevated ,we are holding out on trading oil plays until we have clarity on whether the $52.5 – $54.3 resistance level holds.