Oil has taken several hits in recent trading days that sent its price to 2022 lows. Let's analyze these factors and think about why things are not, in fact, so bad and how oil can rebound from current values.
1. Civil unrest erupted in several major Chinese cities over the weekend. Civilians took to the streets to express their dissatisfaction with the introduction of restrictions to implement the Zero-COVID policy. Protests like these are rare in China, so they have received a lot of attention. The situation with the virus in China is getting worse due to strict lockdowns, that is why oil began to fall.
However, we share the thoughts of some analysts who argue that protests will push Chinese President Xi Jinping to abandon zero-Covid policy.
2. On Saturday, Chevron Corporation received a US Petroleum license. This document will allow one of the largest oil companies to increase production in Venezuela and supply crude oil to the United States.
The main risk for the oil market is that Venezuela may increase oil production, as in previous years. In this case, the oil market will be oversupplied and oil prices will continue to decline.
Oil production in Venezuela
However, increasing production will take the company a lot of time. Chevron faces a number of challenges. The company needs to repair its equipment, fix power outages and power supply issues, as well as the pipeline issues. Chevron also needs to hire hundreds of workers and resolve security issues.
This may take years of work.
3. The EU cannot agree on Russian oil price cap. The price of oil in Russia is already below the proposed price cap of $65-70 per barrel. The market predicts that the price cap will be agreed on, and its level will not be lower than the market prices for the Urals grade. This could have a negative impact on the oil market, since oil production in the Russian Federation may remain at its current level. However, the exact level of the oil price cap is still unknown.
The bullish factor is the upcoming OPEC meeting.
The current market weakness may lead to new supply cuts by OPEC. Earlier in October, the organization cut oil production to support the price level of $90 per barrel.
Thus, the bearish factors are minimized, but the expectation of a reduction in production can provide significant support to oil prices.
At the moment, oil has rebounded from the lows and broke the downtrend. On the daily chart, a morning star reversal candlestick pattern is formed.
The growth target may be levels of 0.5 Fibonacci ($90). At this level, there has already been a trade, and it is also a round level.
The stop can be placed at the exit level below the first candle of the reversal pattern ($83).
At the moment, opening long positions on Brent oil may be considered.
Take profit - $90
Stop - $83