Brent crude futures are trading around $103 at press time after rising more than 40% in the past month, led by the Iran-US conflict, the disruption of the Strait of Hormuz, and Iraq’s declaration of power that removed millions of barrels worldwide.
However, the rally’s momentum faded last week, with Brent down around 2.84%. A closer look at the 4-hour chart shows a pattern that suggests that the market may already be priced too high to avoid this conflict. But then, it’s only possible because one head can change everything within hours.
Head and Shoulders Form as RSI Weakens
The Brent crude 4-hour chart on ICE Europe is showing a head and shoulders formation. This is a bearish pattern in the short term.
Between March 12 and March 27, a the price of oil is making high while the Relative Strength Index (RSI), a momentum oscillator, is making very low. A bearish divergence indicates that the trend is slowing even though the price is rising.
Confirmation of difference is pending. If the next 4-hour candle closes below the current candle, it will confirm the upward swing and confirm the RSI order. Above $104.37, the gap is not allowed for now.
In a market driven by the geopolitical risk premium, a decline in strength on the 4-hour chart may indicate traders are beginning to struggle with bearishness.
Iran rejected US talks on Wednesday, but futures markets are trading lower on the outcome before headlines are confirmed.
Pullback Holds, But Dollar Increases Pressure on Brent Crude
The spread between the first month and the second month of the Brent contract (BRN1! minus BRN2!) has gradually increased to $5.73. When forward-month contracts sell for futures payments, the market pulls back, reflecting the urgency of the immediate barrels.
However, going back also has a second reading. When next month contracts sell at a discount to the next month, the market becomes more expensive at lower forward prices (validating the model), meaning that traders expect the current momentum to slow rather than persist. Possible knowledge of war prevention?
The US Dollar Index (DXY) has broken out of a bullish flag on the daily chart and is trading near 100.16.
Traditionally, a rising dollar will cause oil prices to fall crude is the price of dollars. That relationship was recently disrupted by the oil boom, where rising oil prices are forcing countries to buy more dollars.
However, better communication seems to be falling apart. Over the past week, Brent fell 2.84% while the DXY gained 0.34%. If the traditional playbook repeats itself, the dollar’s strength becomes a Brent storm.
BNO Positioning Leans Positively, but Sentiment Cools
The BNO United States Brent Oil Fund, which tracks Brent crude futures, shows how options have changed. One month ago, when BNO traded at $34.81, the call volume ratio was 0.06 and the open interest was 0.14. The market was in a bullish mood.
As of March 26, with BNO at $50.55, the volume ratio rose to 0.29 and open interest was 0.24. They all stay below 1.0, so phones are still in control. However, the change from 0.06 to 0.29 indicates that traders are increasing the security of the floor as the decision cools.
This means that damage is possible, but it may not be immediate. The 4 hours leans slightly, the dollar leans oil, and the put-call ratio shows sentiment. However, the investment has not turned around, and the pullback still shows real value.
Fuel Price Standards and the Fire Stop Question
Although the 4-hour trend is leaning, current market conditions remain volatile. Short-term trends in the nationally regulated market should be interpreted with caution.
If the head-and-shoulders pattern is confirmed, the measured move shows an 18% correction. Major levels below include $98.27, followed by $88.39, the 0.618 Fibonacci level. A break below $88.39 would reveal the downside, with a full move pointing to $72.62.
On the downside, a 4-hour close above $104.37 would weaken the price of Brent Crude. Complete pattern failure is priced at $119.
Meanwhile, the chart, the dollar, and the RSI together are asking the same question. Is the price of oil already in a decision that the headlines have yet to confirm?
A note Oil Price at $103 Meets Bearish Brent Pattern, Is Fire Stop Selling? appeared for the first time BeInCrypto.
