After price decline, oil is again attractive for buying

21 February 2023 252
After price decline, oil is again attractive for buying

Brent crude oil prices ended last week with a sharp decline, in line with the previous forecast. At some points, the price dropped below the level of 82, however the sentiment of market participants changed yesterday, which resulted in a decent growth of almost 1%. Today, the bears are again trying to seize the initiative, but at current levels the downside potential for oil prices already looks limited.

At the moment, there are two main factors affecting the oil market, and their influence on the price dynamics is contrary to each other. On the one hand, demand for energy resources from China is growing. After the end of the New Year holidays, traffic jams in major Chinese cities last week were the biggest since the beginning of 2022. Sooner or later, this should lead to a rise in oil prices.

However, the uncertainty about future changes in the U.S. monetary policy prevents oil prices from showing a strong rebound. Today and tomorrow, investors will be provided with new food for thought regarding the level of interest rates and demand outlook for dollar assets. On Tuesday, a new release of business activity indexes is scheduled, and if they show a significant increase, it would raise fears about the growth of interest rates and could put pressure on oil prices.

The key event of the week is Wednesday's release of the Fed's latest policy meeting minutes. The overly "hawkish" sentiment of the U.S. regulator's officials could become a trigger for renewed downward pressure on oil. Still, the potential for the price decline is limited by the uptrend line, which goes over the lows of December, January and February. The prices are unlikely to be sent below the trend line at the moment.

In the coming days, oil prices might continue declining against a tense news background, but the range of 81-82 looks interesting for opening long positions anyway. There is a chance of a rebound from the trend line to the level of 84.

The following variant of a trading strategy can be offered:

Buy Brent crude oil as it declines to the 81–82 range. Take profit — 84. Stop loss — 80.

Traders can also use Trailing stop instead of a fixed Stop loss at their choice.

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

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