The Sep’25 Brent crude futures climbed higher last week, closing above $70/bbl and opening higher on Monday morning, reaching $71/bbl. Prices are at their highest level since the late June sell-off. We expect prices to remain elevated this week, with Brent to close between $70 and $73/bbl. The key factors this week are as follows:
- Geopolitical Developments
- US+China Macroeconomic Data
- Physical Market Strength
- Bullish Technical Setup
Geopolitics returns to the forefront this week amid President Trump’s announcements on tariffs and his shifting policy rhetoric towards Ukraine. Trump has delivered a litany of letters to some of the US’s biggest trading partners, the latest being directed towards Mexico and the EU, threatening 30% tariffs. Although tariff announcements spooked markets immediately after ‘Liberation Day’, there was a muted reaction this time, with the Euro Stoxx 50 falling by less than 1%. Meanwhile, President Trump has stepped up his criticism of Vladimir Putin and has pledged to send to Ukraine ‘sophisticated’ equipment, including Patriot missiles, promising a ‘major statement’ ahead of his meeting with Nato Secretary General Mark Rutte today. Meanwhile, Iran has stated that no specific date for US nuclear talks has been set, dimming the prospect of sanctions relief. Overall, regarding geopolitical developments, tariffs are taking a backseat to the prospect of a sharper policy pivot vis-à-vis Ukraine in terms of driving crude prices higher.
A slew of key economic data on the world’s two largest economies is set to be released this week, which could impact the demand sentiment for oil. In a positive sign, China’s exports are at record highs, rising by 5.8% y/y and exceeding forecasts of 5.0%. The uptick comes amid a temporary easing of tariff pressures ahead of the August deadline and despite exports to the US falling by 16% m/m. China’s Q2 GDP data, industrial production, and retail sales data are set to be released on Tuesday. Traders also await US economic data later in the week, including the CPI (inflation rate), PPI, retail sales, and the University of Michigan Consumer Sentiment.
Physical strength has supported the bullish sentiment in Brent futures with the front futures spread (Sep/Oct) heavily backwardated and supported above $1.20/bbl, indicative of a tight market. This has been attributed to the strength in refinery margins, especially through strong distillate cracks conducive to higher demand. Despite our bearish global crude balances and rising inventories in China, pricing centres in Western countries are indicating below-average stock levels, especially crude and distillate inventories in the US. This has attracted substantial refinery buying flows, concentrated in the Aug’25 Dated structure, with the Aug/Sep’25 DFL roll supported above $0.60/bbl. These factors justify the strong backwardation at present, supporting the bullish sentiment in crude.
Finally, Brent futures remain in a bullish technical setup, with multiple indicators showing upward momentum. The MACD histogram is nearing a bullish crossover, while price action has held above the upper Ichimoku cloud, with the lagging line also above the cloud. Last week’s breakout above the 100-day moving average was validated as prices found support at that level on the pullback. Additionally, a bullish engulfing pattern on 11 July signals strong buying interest, and the upcoming upward shift in the Ichimoku cloud reinforces the constructive outlook.
