Oil made another downside reversal move yesterday. Uncertainty in the oil market widened as the price hit its highest in a month and a half.
U.S. crude inventories have grown by 3.4 million barrels over the past week, according to the American Petroleum Institute (API). The API reported consecutive increases of 7.6 million and 14.9 million barrels in crude stocks during the previous weeks.
The EIA is likely to post a 0.9-million-barrel gain in crude inventories later today that followed an 8.4-million-barrel rise the week before.
U.S. oil inventories continue their bearish momentum, putting a downward pressure on commodity prices.
European Central Bank (ECB) President Christine Lagarde said the bank is ready to take all necessary measures in order to bring inflation down to the target level. Lagarde stressed that it is likely to call for more aggressive rate hikes in subsequent meetings.
During her speech in Eschborn on Monday, the ECB Chairman also outlined that the borrowing cost is going to keep rising over time. During her speech in Eschborn on Monday, the ECB Chairman also outlined that the borrowing cost is going to keep rising over time. It should reach a certain level and stay there for as long as possible.
Coupled with the U.S. PMI data for January that showed stronger than expected growth yesterday, the sentiment around oil is getting negative. With the U.S. economy being strong, the Fed should continue to tackle inflation to its target level, and that means a stronger rate hike in the near term. The ECB is also resolute about the rate. This data could trigger a wave of correction in oil prices.
Based on the technical analysis, the price of oil broke out of the rising trend. This trend has been tested upwards on the hour timeframe, while oil continued its decline. Such oil behavior hints at further drop, with the target to be determined through the Fibonacci retracement levels.
So, the downside target will be the price of $84.74. This is where the Fibonacci level of 0.382 runs. Stop-loss will be placed when the oil price returns to the uptrend at the level of $87.90.
Brent is likely to decline:
Take profit - $84.74
Stop-loss - $87.90
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