The dynamics of Brent futures on Monday was very similar to trading sessions at the end of the previous week. Attempts of active growth (price increase during the day exceeded 3%) withered by the evening. Nevertheless, oil managed to hold half of the gains, which is a good sign for oil prices for the current week.
The biggest trigger for the oil price growth is now situated in Asia. China has removed all of its travel restrictions, both internal and international. This has immediately led to a rapid growth in transportation, which might cause higher fuel demand in China and from foreign airlines aiming at restoration of transport links between the countries.
Considering the fact that a number of international flights in China is now at the level which makes up only 15% from pre-pandemic levels of 2019, there’s a significant potential for further growth. Certain analysts suggest that lifting of COVID-related restrictions in China will result in demand getting higher by 4 million barrels per day, which is 4% of total global demand. Given the impossibility of a sharp increase in global oil supply, this might become a reason for a notable price surge.
Anticipating the upcoming demand growth, China is increasing oil purchases. This year’s first quota for oil imports was granted to refineries. A total of oil quota is now approaching 112 million tons, which is 20% more than last year’s first oil import quota. This move highlights the expectations for growing demand for oil and refined products, which may support the prices even as western economies are slowing down.
The Stochastic indicator is turning from the oversold zone and shows a buy signal. The closest target for Brent oil will be the level of 82.5, where the September and November lows were reached last year.
The following version of a trading strategy may be offered:
Buy Brent at the current price. Take profit – 82.5. Stop loss – 77.8.
Traders may also use a Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.