Brent sell

Oil is declining within its trend

31 January 2023 226
Oil is declining within its trend

Commodities are speeding up their decline after reaching multi-month highs. That trend affected oil as well. The correction looks quite evident after accumulated overbought. At the same time, the global uptrend in commodities is still relevant, but the local correction is likely to continue.

The news background is not conducive to oil growth.

The British oil company BP presented its annual energy forecast, where three possible scenarios were mentioned. In each scenario, the demand for oil and gas decreases as renewable energy sources are increasingly incorporated into production and transport electrification. The differences are based in the pace of these changes. The company's most conservative scenario assumes that global oil demand will not change much by 2050 and will be about 73 million barrels per day. This figure is a quarter less than in 2019.

The amount of electricity produced by burning fossil resources in the European Union will fall in 2023 as the bloc focuses on renewable energy sources.

According to Ember, a British energy think tank, total energy generation from fossil sources could fall as much as 20 percent this year. Meanwhile, pretty expensive natural gas-fired power generation will fall the fastest.

Coal and gas will be the most affected by this trend. However, oil is also a fossil resource, so its demand may decrease in Europe.

According to the technical analysis, oil is in a gentle uptrend. After reaching the local highs, there goes some movement to the lower boundary of this trend. If to apply the Fibonacci grid, it is getting clear that previously the level of 0.236 was broken and right now the level of 0.382 is also being crossed.

Further decline will be to the 0.5 Fibonacci level. This figure usually appears as a solid support. Besides that, due to the relative proximity of the uptrend’s lower boundary, the chance of a rebound from this level increases. Thus, the downside target for oil will be around $82.16. A stop-loss can be placed on a pullback to the previous Fibonacci level of 0.236, which corresponds to the price of $85.65.

Brent oil decrease:

Take profit – $82.16

Stop-loss – $85.65

This content is for informational purposes only and is not intended to be investing advice.

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