Crude oil extends gains on hopes for output freeze

Crude oil extended its gains on Monday, furthering its laborious rise from late January’s 12-year low below $27 per barrel for the Brent Crude benchmark. This climb from its recent extreme depths has been built primarily on continuing hopes for a proposed deal among Saudi Arabia, other OPEC nations, and Russia, to freeze oil production levels at January’s levels.

These hopes were further boosted on Monday after the Saudi government issued a statement reiterating its intention to cooperate closely with other major oil-producers in limiting oil market volatility. These comments further raised recent optimism that a deal could potentially be struck to help alleviate persistent crude oil oversupply conditions.

Also helping to boost oil prices on Monday was a move by China’s central bank to cut its reserve requirement ratio once again. This action, which is intended to aid in lifting up China’s lagging economy, helped to support crude prices partly because of its potential to jumpstart slowing oil demand from the second largest consumer of crude oil in the world.

This rise in oil prices pushed the Brent Crude benchmark up to hit major resistance around the $36 level, which was previously a strong support level before a swift breakdown to new lows occurred in the beginning of the year. After that breakdown and the noted 12-year low below $27 was hit in January, an attempted recovery in late January and early February was unable to breach the $36 resistance level.

Now that Brent has risen to bump up against this resistance once again, it has arrived at a critical technical juncture. From a longer-term perspective, Brent has been trading within a well-defined descending trend channel since its intermediate high just under $70 in May of last year. With any impending breakout above the $36-per-barrel resistance, price action could begin to target the upper resistance border of that declining trend channel, which is currently around the psychologically-significant $40 level. Despite this potential for further gains, however, the price of Brent may treat that border resistance area as a bearish turning point within the context of the broader downtrend.

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