Brent sell

Potential rise in supply and squeeze in demand might weaken oil

28 February 2023 227
Potential rise in supply and squeeze in demand might weaken oil

Yesterday oil continued to be under pressure amid potential rate hikes by the Fed. Global inflation data are higher than expected.


Iraq has signed several deals with foreign companies to increase crude oil and natural gas production. Iraq is significantly dependent on neighboring Iran for gas consumption, therefore, the rise in gas production might be especially important.

The government in Baghdad has made deals with one Emirati and two Chinese companies, aiming to stimulate the rise in oil production by a quarter of a million barrels per day and the rise in natural gas production by 800 million cubic meters per day.

The rise in oil production by 250,000 barrels per day is quite a substantial increase. For comparison, since March Russia has reduced its production by 500,000 barrels. Thus, half of this reduction will be leveled by another country.


India’s economic growth probably slowed between October and December. Rising borrowing costs limit consumption, which is a key growth factor.

Gross Domestic Product (GDP) is forecast to increase by 4.7% last quarter compared to a year before, according to the average estimate of economists in a Bloomberg survey. Official data will be released on Tuesday. It will be the lowest quarterly result after the rise by 4.09% in the three months ended last March.

India is the world’s third-largest oil consumer and fourth-largest importer of liquefied natural gas (LNG). An economic slowdown might have a negative impact on demand for energy.


The technical analysis shows that oil continues to trade around the low of an uptrend. The RSI is not oversold, but the oscillator points down. According to Fibonacci, we see another attempt to break down the level of 0.5. Amid negative market sentiments, we assume a riskier attempt to break through this level. In this case, it might decrease to 0.618 which will be similar to the previous local low.

Thus, the target for the short position will be $80.4. The stop-loss will be set when it goes above the next Fibonacci level of about $84.0.

 

Brent oil is likely to decrease:

Take profit – 84.20

Stop-loss – 86.77


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

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