Following a short-lived retreat on Thursday, oil prices have resumed the rally ahead of the weekend, looking poised for a fourth straight week of gains. Brent crude exceeded the $85.50 region in notching late-October highs earlier in the day, which could point to signs of being overbought at this stage. After rejection from fresh peaks around $85.70, the prices slipped below the $85 figure in recent trading.
The market is supported by a weaker dollar that came off two-month lows slightly in recent trading while staying vulnerable to further losses in the near term despite new hawkish signals from the Federal Reserve.
Earlier in the week, the oil futures were aided by a decline in the US crude oil inventories to the lowest levels since October 2018. Furthermore, the EIA raised its Brent spot average price forecast for 2022 to $74.95 per barrel, marking a nearly $5 increase from its previous estimate.
Now, as there are some signs of being overbought, we could expect a downside correction from the peaks. Should the prices get below the $84 figure, the sellers could send the barrel to the $83.50 local support zone. Still, as long as prices keep above the $80 psychological level, there is a good chance for another leg higher next week.
The critical risk for the bullish outlook now is China as the coronavirus cases keep rising, making local authorities announce renewed restrictions in several provinces. A move to further restrictions and even lockdowns, in turn, threatens energy demand in China.