Rebound won’t help Brent crude to break out of downtrend

Brent crude managed to rebound from a 7-month low of $59 per barrel ahead of Christmas holidays. However, the oil market remains in hot water, and further growth isn’t guaranteed. The price has just approached the downtrend line originating from July peaks, but bears won’t give up easily. The 50-day moving average has acted as a strong resistance level since late September, hindering bulls' efforts. For now, the most likely scenario is a pullback to $60.5.

From a technical perspective, Brent’s surge by 6.5% from recent lows has pushed the Stochastic Oscillator close to overbought territory for the first time in two months. Its lines are set to cross soon, issuing a sell signal. The Relative Strength Index (RSI) keeps hanging out in the neutral zone, with a potential price movement either up or down. Despite all recent gains, the market remains bearish, as quotes haven't yet breached the downward channel to hit $64 per barrel.

A local recovery was initially triggered by the US restrictions against Venezuelan crude exports. However, the actual supply reduction may be less significant than traders’ reaction. According to Bloomberg data, there has been no substantial change yet in volumes of oil loaded onto tankers in the South American country’s ports. Moreover, about half of these vessels are chartered by Chevron, which has a license to export fuel from Venezuela to the United States.

Reuters analysts believe that American officials have little interest in escalating the situation, at least until the end of winter. The US sanctions are highly likely to reduce Venezuelan oil revenues but won’t have a significant impact on the global supply-demand imbalance. Ultimately, raw materials from Iran, Russia, and Venezuela always find buyers, albeit at a discount. Additionally, the South American country produces less than 1 million barrels per day—not a great loss for the market, especially when winter demand is low.

Try out the trading strategy presented down below:

Sell Brent crude at the current price. Set Take profit at $60.5 and Stop loss at $64.