Yesterday’s release once again showed strong U.S. economic data. The business activity indexes turned out to be higher than forecasted and above 50 points. This means that economic activity in the U.S. has shifted to growth despite rate hikes and the energy crisis of last year. A slowdown in economic activity was neither prolonged nor deep. A strong U.S. economy means that the Fed will be more aggressive in fighting inflation and keep the key rate high for a longer period of time. This means that sooner or later the U.S. economy will go into recession anyway.
Yesterday, commodity markets performed fairly well compared to the U.S. stock market, which closed with a decline of 2%. The strength of the commodity market could mean a possible preparation for a new rally.
Even in case of a panic in the oil market, OPEC+ will be ready for further production cuts to maintain acceptable prices. The organization repeatedly declares readiness to do it.
OPEC+ seems unlikely to provide maximum production levels this year. According to Matthew Bey, Senior Analyst at RANE, all major OPEC+ leaders are satisfied with supporting the oil market. Current prices are comfortable for the members of the organization, given the existing production limits. The last ministerial meeting of OPEC and other countries was held via videoconference on December 4, 2022. At that meeting, OPEC+ decided not to change the production level.
According to the technical analysis, volatility in the oil market continues fading. A pennant pattern is forming on the daily timeframe, and the prices are now closer to its lower limit. It's possible to try and play on further movement inside the figure. An exit from the figure right now is not impossible, but rather unlikely. The pennant is still in the process of formation.
In this case, it’s worth opening long positions with the first growth target at 0.382 Fibonacci. This is the level of $83.8. Stop-loss will be quite short. It will be placed below the limit of the pennant and the 0.5 Fibonacci level of the entire growth wave. Then, the stop will be near the level of $82.0.
An increase of the Brent oil price:
Take profit —83.8
Stop-loss — 82.0
This content is for informational purposes only and is not intended to be investing advice.