Last week, prices of Brent crude oil fell to the uptrend line from the December lows, as expected. Despite the fact that the closing price was below the trend line at the end of the February 22 trading session, the breakout turned out to be false, and the next day a buyout of most of the drawdown took place. This week, we expect the upward rebound to continue.
It’s notable that oil prices on Friday not only didn't fall, but continued Thursday's rebound, while most other commodities experienced significant price losses. Overall negative sentiment was caused by the release of the U.S. Personal Consumption Expenditures Price Index for January. This indicator is the main one for the Federal Reserve System when it comes to determining the rate of inflation, so its sudden rise from 5.3% to 5.4% (while it was expected to decrease to 5%) immediately raised expectations regarding future interest rate levels.
This week, the dynamics of oil prices will depend a lot on the PMI data from China, which will be published on Wednesday. Despite the growth of indicators, the January statistics didn’t show strong economic recovery in China. Traders may now be in doubt about the timing of the recovery, given China's weak growth of manufacturing activity. It’s expected that February data will again show a decline in the manufacturing sector (with the PMI being less than 50 points).
A continued slowdown in U.S. drilling activity may support oil prices. Over the past week, the number of active oil drilling rigs dropped by another 7, to the total of 600. And for the entire month of February, the total number of rigs fell by 18, which is the largest decline in the pace of well drilling since June 2020. A slower pace of drilling will prevent U.S. companies from expanding oil production by any significant degree in the near future.
The 81-82 range is still looking appealing to buy Brent oil. The first growth target is the level of 83.6.
The following trading scenario may be suggested:
Buy Brent oil within the range of 81–82. Take profit — 83.6. Stop loss — 80.2.
Traders can also use a Trailing stop instead of a fixed Stop loss at their own convenience.
This content is for informational purposes only and is not intended to be investing advice.
