Is Brent oil poised for technical recovery?

Brent oil staged a modest recovery in the overnight trade, although sentiment remains bearish on concerns the oil glut persists despite the global output cut deal.

Bullish inside day candle

Brent oil dropped to a low of $44.34 on Wednesday, before ending Thursday higher at $45.27. The price action when viewed on the daily chart shows bullish inside day candle formation. The candlestick pattern signals bearish exhaustion, although only a positive follow-through today would confirm a bullish reversal.

The RSI is oversold on the daily chart, while the 4-hour RSI has turned higher from the oversold territory. Chart setup does indicate a potential for technical recovery, although being too optimistic isn’t advisable.

This is because there is increasing fear in the market that the increasing production from countries like Libya (exempt from output cut deal) may eventually force Saudi to throw in the towel in its fight against oil sell-off.

The focus today is on the preliminary PMI readings in the US and across the Eurozone. An uptick in the manufacturing activity may strengthen oil prices. The more important release is the US Baker Hughes rig count data. Operational oil rigs in the US are rising at a faster rate and are more efficient than they were 2-3 years ago. The technical recovery in oil would falter if Baker Hughes reports a big jump in the oil rigs.

Brent Technical Levels

Oil was last seen trading around $45.25/barrel. The 4-hour chart shows falling channel and the RSI flat lined around 40.00. A close above $45.43 on the 1-hour chart could yield a corrective rally to $46.18 (resistance on 4-hour) and $46.50 (channel resistance).

On the lower side, a break below $45.00 would open up downside towards $44.52 (support on 4-hour) and $44.00 (zero levels).