Oil drawdown was bought out, though bearish investors may come back again

Brent crude oil showed a significant decline in the first half of Tuesday, as quotes fell to 83. However, lately the slump got rapidly bought out, so yesterday's trading was closed with an increase of more than 1%. On Wednesday morning, oil price fluctuations go down, with all market participants waiting for today's most important events.

At the same time, this morning brought some unpleasant news from Asia. China's Caixin industrial PMI for January was worse than expected (49.2 vs. 49.5) and the figure below 50 points is still indicating a drop in economic activity. It means China's small and medium-sized enterprises, unlike the large ones (their PMI yesterday showed an immediate increase from 47 to 50.1), do not reflect clear signs of production recovery yet. This current dynamics may keep raw materials demand down for a while longer.

There are some concerns that the growth of oil and other commodities demand in China may not be as fast and widespread as forecasted last year. For sure, the given data for only 1 month is not a proper reason to draw far-reaching conclusions. However, the commodity traders’ sentiments will not be that favorable.

This week is full of important events, especially for today: the OPEC+ conference and the Fed meeting. Market participants do not expect any major decisions from OPEC+, however as for Fed, there is some uncertainty. Considering that many assets in financial markets are at the local highs before the U.S. regulator's meeting, the chance of profit taking and quotes drawdown is increasing.

The short-term downside target for Brent crude oil may be 84.4. In case of a larger drop, the target may shift closer to yesterday's lows, near the level of 83.

The following version of trading strategy might be offered:

Sell Brent crude oil in the range of 85.4-85.6. Take profit 1 – 84,4. Take profit 2 – 83,2. Stop loss – 86,4.

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