Overbought condition is increasing, though news background keeps pushing oil prices higher

The correction in oil prices, which seemed to have started on Monday, was replaced by a new surge the very next day. Although the prices are technically in the overbought zone, fundamental factors are now completely favoring further price growth. It’s necessary to note that the current January minimum (77.6) is above the December lowest point of 75.11. If the month ends without the price going below 75.11, it will indicate a break in the downtrend in oil prices, which had been persisting from June to December of last year.

An overall market optimism regarding oil demand in China was also confirmed by the OPEC monthly report, published yesterday. The Organization of Petroleum Exporting Countries forecasts a total growth by 2.22 million barrels per day in global oil demand in 2023, or by 2.2%. China will account for 510,000 barrels of this amount, which is almost a quarter.

Besides the Asian factor, price growth might be affected by the news from the Western hemisphere. As it was recently reported, a new head of PDVSA, Venezuela's state oil company, ordered to freeze the country’s exports, as he plans to revise existing contracts.

Previously, Venezuela required buyers to provide advance payments in the amount of at least half the value of the cargo, and now some buyers have been instructed to prepay cargoes in full before delivery. It’s unlikely that companies which trade Venezuelan oil will immediately agree to these terms. This fact might lead to supply disruptions, and it will become another factor in favor of higher oil prices.

The Brent oil price has already approached the next important range of 87-87.2. In case this level is crossed, a way for the December high at 89.3 will be opened then. Meanwhile, the Stochastic indicator signals the overbought condition, but there has been no downward reversal yet, so the growth potential up to the round level of 90 is still there.

The following trading strategy version may be offered:

Buy Brent oil at the current price. Take profit – 89,3. Stop loss – 85,4.

Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.