Correction expected in oil prices as “profit targets” reached

The Intermediate and international-benchmark Brent crude oil futures in the U.S. West Texas are soaring higher at the end of the week, heading toward major upside objectives. While this might be good news for some traders, it is also a juncture for traders to make major decisions. This is so as these objectives are often viewed as profit targets. Consequently, there is a tendency for short-sellers to go all out to defend these areas as they aim to form secondary lower tops. Aggressive counter-trend buyers on the other hand will be looking to drive the market through these areas.

OPEC and its allies aim to drive prices higher as they aim to balance the market. This goal has been substantiated in recent times with the Saudi Energy Minister, Khalid al-Falih, saying on Wednesday that he hoped the oil market will reach a balance by April. He also declared that there would be no gap in supplies due to the sanctions placed by the United States on OPEC members Iran and Venezuela.

One major point that is worth considering by all stakeholders in the market is that the current price action is an indication that WTI and Brent may reach balance points on the charts sooner rather than later, with some analysts stating that the points may be reached as early as next week, which could be an attraction for new sellers.

Supply Cut Driven Rally

It is no news that crude oil is being majorly underpinned by cuts in the output from top producers. This is in addition to the trade restrictions on strong OPEC members – Iran and Venezuela. It is also worth noting that the rally has gained secondary support by the hopes of a trade deal between the United States and China – two countries that have at war in recent times, as well as a strong rally in the equity markets.

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Phillip Private Equity is one of the leading private equity firms in Singapore. Formerly known as ECICS Management Pte Ltd, the company offers a wide range of financial services with a focus on providing capital in the form of equity and debt to innovative enterprises across select stages, sectors, and geographies.

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