On 8th July, we noted that oil prices were forming a large narrowing triangle, originating from 2022-2023, with its upper boundary being a significant resistance point.

As shown on the Brent oil price chart (XBR/USD), bulls have since failed to overcome the upper boundary resistance around $87. Subsequently, the price:

→ turned downwards, breaking the blue upward trend line;

→ eventually breached the support level at $84, which we highlighted on 8th July;

→ Formed a descending channel (indicated in red).

Bearish sentiment is driven by:

→ news of increased oil inventories;

→ reduced tensions in the Middle East. Israeli Prime Minister Benjamin Netanyahu stated that an agreement with Hamas on hostage release is "maturing."

What’s next?

Technical analysis of the Brent oil price chart indicates:

→ The price is at the lower boundary of the red descending channel, which may provide support.

→ The accelerated decline since Friday has resulted in a loss of over 4%, potentially prompting bears to take profits.

In the short term, a bullish correction to the median line of the red channel is possible. The holiday season, currently in full swing, could also support oil demand.

What about the long term? Reuters reports an oil price forecast from Morgan Stanley analysts, according to which, although there is a clear deficit in the oil market, they expect that supply and demand will reach equilibrium by the fourth quarter, and by next year there could be a surplus, resulting in prices for grade oil Brent will fall closer to $70 per barrel. If accurate, this would mean the current narrowing triangle would be broken from the top down.

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