Oil corrected after a rise of more than by 10% over the week. This correction was necessary to eliminate the overbought condition. The main growth driver is, of course, the opening of China. Besides that, some positive data on inflation in the U.K. and the E.U. were released yesterday, as well as data showing a decline in industrial inflation in the United States. The correction in the oil market was caused by the U.S. retail sales, as the dynamics of this indicator got more negative, decreasing by 1.1% in December, while the forecasted decline was by 0.8%.
However, today’s news background remains favorable for continuing growth in oil prices.
The International Energy Agency released its monthly report on Wednesday. According to the data provided in the report, global oil demand might rise by 1.9 million barrels per day in 2023, thus reaching the record level of 101.7 million barrels per day.
As it was stated in the IEA report, China will account for nearly half of this growth in global demand, even if the speed of its economic recovery remains uncertain.
On Wednesday, Philadelphia Federal Reserve President Patrick Harker stated that he is ready for the U.S. central bank to move to a slower pace of monetary tightening due to appearing signs of inflation cooling. He also added that sharp increases by 75 basis points, similar to the Fed’s rate hikes of the previous year, are unlikely to happen.
A softer monetary policy of the Fed will have a positive impact on economic growth and oil demand.
As shown by the tech analysis, the current correction reached the support level, from which the oil price has already rebounded several times. This support is a kind of trend line, which the oil price has been moving along for the whole month. By applying the Fibonacci levels from this year's low to its high, we see that the oil rebounded from the 0.382 level. The oversold condition of the RSI on an hourly chart also indicates a possible reverse. The current growth target is the next level of 0.236 Fibonacci, which is $85.40. Stop loss is placed slightly below the support level at $83.40.
An increase of the Brent oil price:
Take profit – $85.40
Stop-loss – $83.40