As it was expected, Brent found a strong support at the level of $70 per barrel, from which a significant bounce upward started. The first bounce targets (73 and 74) were reached, and there is some softening at the beginning of Wednesday's trading. Now a small pullback down before the continuation of the growth to the next target - the level of 76.5 - is quite acceptable.
Oil quotes stopped growing after the publication of the American Petroleum Institute (API) report. According to this document, U.S. crude oil reserves rose last week. Such changes may indicate a possible weakening of demand for fuel. API data showed an increase in U.S. crude oil reserves by 3.3 million barrels for the week ended March 17.
At the same time, representatives of major oil traders and energy hedge funds, speaking at the FT Commodities Global Summit, demonstrated an optimistic tone, despite the problems of the banking sector, and expect a jump in oil prices by the end of the year. Pierre Andurand from Andurand Capital believes that the potential price of Brent oil will be $140 per barrel by the end of the year. He said that the current decline is speculative and is not based on fundamental oil market data.
Heads of hedge funds from Citadel and Goldman Sachs stated that the capital required to invest in energy production is still not enough, which will give an additional support to oil prices. Marco Deunan of Mercuria pointed to the uncertainty of oil demand forecasts affecting investment. At the current level of unpredictable demand, producing companies cannot significantly increase investment, and this will push oil prices higher.
A pullback of Brent oil prices in the 74-74.5 range can be used to build up long positions. If today's Fed meeting does not bring any negative surprises, oil prices could quickly return to growth and reach the Fibonacci level at 38.2% (at 76.5).
The following trading strategy option can be suggested:
Buy Brent oil in the 74-74.5 range. Take profit – 76.5. Stop loss – 73.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
