Brent Crude Soars: Factors Driving 2023's Remarkable Rally

Brent crude oil has exhibited a noteworthy upward trajectory in the current calendar year, with several factors contributing to this surge in prices. One of the prominent drivers on the global stage has been the deliberate reduction in oil supply by major players such as Saudi Arabia and Russia. These voluntary supply cuts, amounting to approximately 1.3 million barrels per day until the year’s end, have exerted upward pressure on Brent crude prices.

In addition to these supply dynamics, the specter of inflationary pressures has played a pivotal role in propelling oil prices to higher levels. Inflation, often associated with increased production costs and diminished purchasing power, tends to stimulate demand for commodities like oil, further boosting its price.

Technically speaking, the price of Brent crude oil embarked on an upward trajectory from its consolidation range at $87 per barrel on the first day of the current month. Since that pivotal moment, the crude oil market has witnessed an impressive gain of 9.99%. This remarkable climb is indicative of a robust trend that appears poised to persist, possibly taking a temporary breather around the $98 per barrel mark. Before the breakout, there was a bullish crossover with the 10-week moving average crossing above the 40-week moving average adding weight to the bullish momentum.

It is important to note that while corrections may occur along the way, they are likely to be viewed as pauses rather than reversals in the overall upward movement of Brent crude oil. The prevailing trend remains bullish, supported by a combination of fundamental factors such as supply cuts and inflationary pressures, as well as the technical breakout from consolidation.

As with any financial market, it is essential for investors and analysts to exercise caution and prudence, as the landscape can evolve rapidly. Therefore, while the current outlook suggests a continuing upward momentum for Brent crude oil, market participants should closely monitor developments and adapt their strategies accordingly. This assessment is offered as an opinion on the current state of the market and not as financial advice.

- Foram Chheda, CMT