Brent oil rallied to fresh two-and-a half year highs overnight, breaching $66 a barrel for the first time since June 2015 after news of a pipeline explosion in Libya, which fuelled supply disruption concerns. But prices encountered resistance in the $66.50 area and retraced under $66 a barrel. Brent extended its corrective slide towards $65.50 and has stabilized.
As the black gold tapped on the $66 handle, the market welcomed the signal as a good opportunity for profit taking which was exaggerated by low trading volumes. According to the latest estimates, the repair work in Libya will take about a week. So it’s a short-term supporting factor for prices. Meanwhile, partial flows have already restarted at the Forties Pipeline System’s Kinneil facility.
The issue with Forties is gradually fading into the background ahead of the weekly US crude stockpiles data. And it was also a catalyst for Brent retracement, though a broadly weaker USD remains supportive to crude. Given the risks from the US data, especially on the production side, there is a chance the bearish correction will continue, which is also a reasonable strategy at the turn of the year. In such scenario, Brent may probe $64.80 a barrel. The move lower will introduce scope to the $64.50 area.