Brent is Surging towards $105 – Will it Break this Bull Flag?

Brent Crude, or black gold, as some may call it, is now surging by more than $5 since its little love tap to $98.6 dollars per bbl last night. 

As of the time of writing this article, Brent Crude is trading at $104.600 per bbl, kissing the top of the descending channel (or bull flag) and potentially threatening a breakout.

Should a breakout occur, the bull flag target is estimated at around $127, but the following areas are also appropriate targets:

1. The 2026 highs at 110.195 to 113.635 could provide some resistance.
2. The $120 psychological number could also be where participants could take profit.
3. The actual target at around ~127, which is the height of the breakout after applying the flag pole of the pattern.

Now, since Brent crude is positively correlated with dollar strength, it would not be surprising to see DXY move up as well during this breakout.

In fact, DXY is already attempting to break its own resistance zone:

But don’t get too excited just yet, because ultimately, we need a clean daily close above the points of resistance.

For Brent, that is the bull flag’s upper trendline, and then holding it as support, and for DXY it’s the 100.82 – 101.92 zone.

What this would mean is that inflation risks stay active, and rates stay high across the board (US, EU, GB, JP).

Alternatively, if this was a fakeout, we’d need to see Brent print a clear rejection candle like a shooting star pattern, or a large red candle at the top of the flag.

This could theoretically bring Brent back to 98.6, or even towards the 90.185 – 95.485 support zone.

Naturally, this would create headwinds for DXY, by way of simply lowering the yields and rate hike odds even further.

EDIT: Why Is Brent Jumping?

One big reason is China.

China has stopped most gasoline, diesel and jet-fuel exports for October because it wants to keep more fuel at home. That takes supply away from everyone else at a time when diesel is already tight.

And that can feed back into crude.

Diesel is made from crude oil. If diesel becomes harder to find and more expensive, refiners elsewhere have more reason to run harder and buy crude to make more of it. So even though Gulf crude supply has been recovering, the shortage in the finished product can still support Brent.

Asian diesel refining margins have already climbed towards $76 per barrel.

Why doesn’t every country just keep its diesel at home?

They can. And some already are.

Russia has restricted diesel exports, and the US is now considering doing something similar.

The problem is that an export ban does not create more diesel. It just keeps more of the existing supply inside your own country.

For the US, that could help domestic diesel prices, but there is a catch. The US is one of the world’s biggest fuel exporters, so cutting exports would squeeze countries that depend on American diesel. It could also mess with refinery economics and even push up other fuels such as gasoline. That is why Washington is still debating it rather than simply banning exports outright.

So for now, China keeping more fuel at home is basically making an already tight diesel market even tighter. And that gives Brent another reason to push higher.