Leading up to the strong surge, UK Oil fell away strongly from the key level of $43 which now continues to play a role and in recent time, has provided resistance, and more recently, support. For the two months or so prior to the latest push higher, the $43 level had been providing stiff resistance and constant downward pressure on prices. During this time, UK Oil has made repeated attempts to break through the long time key level of $43 so it is quite significant that it has now broken through this level and received support. It has spent the best part of the last two months trading below this level after falling sharply through it from a six month high above $46.
UK Oil reached the six month high after very slowly but steadily moving higher in a period of very low volatility, although the volatility has return in the last month. After it broke through $43, it was able to enjoy some strong support from this level, however this has now been strongly broken through and is providing some resistance as expected. In early June UK Oil made two solid runs towards a then three month high and met stiff resistance at $43 on both occasions. Throughout May, UK Oil slowly but surely moved higher to that three month high, before falling sharply, and then making repeated attempts to push passed the current resistance around $43.
Its recent surge higher is a vastly different picture to mid-April, as UK Oil sank to its lowest level in many years below $20, and currently UK Oil is close to closing the significant gap down in early March, by returning to above $45. In early May, UK Oil settled right around the key $30 level after rallying well off the multi-year lows below $16, and it also consolidated well several weeks ago around $35. After a significant gap down from $45 to $35 in early March, it initially received solid support from another key level of $25 which had supported it well for several weeks, which was so desperately needed, so it was telling when its largest fall was breaking through the $25 level mid-April.
As there has been increasing talk about COVID-19 vaccine hopes, risk appetite has been boosted in financial markets around the world over the last month or so, which has flowed into oil markets. The Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, a group known as OPEC+, recently came to an agreement to slightly increase output starting in January but they will maintain the bulk of existing supply curbs to cope with coronavirus-hit demand. Last week OPEC+ agreed to ease deep oil output cuts from January 2021 by 500,000 barrels per day (bpd) with further increases monthly, however they failed to reach a deal for the remainder of the year. OPEC+ had been expected to continue existing cuts until at least March, after backing down from plans to raise output by 2 million bpd. The increase means the group will reduce production by 7.2 million bpd, or 7% of global demand from January, compared with current cuts of 7.7 million bpd. U.S. production, meanwhile, has recovered from the two-and-a-half-year lows touched in May mainly because shale producers have brought wells back online in response to rising prices.
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