Brent oil ended last week with another downward move, losing more than 2% during Friday's trading. The total loss of "black gold" exceeded 12%, which became the worst one-week result since the beginning of the year. Quotes are rapidly approaching the level of $70 per barrel, where the buyers' activity may significantly increase.
The main trigger for the decline in oil prices is still the situation in the banking sector in the USA and Europe. Despite emergency measures of regulators to stabilize financial markets, investor sentiment is still far from normalization. At the weekend, Swiss authorities basically forced UBS Group AG to buy Credit Suisse Group AG and thus to save the country's second-largest bank from bankruptcy. Nevertheless, market participants are still not convinced that the authorities' actions will be enough to control the spread of the crisis in the global banking system.
OPEC+ participants noted that the price of oil fell exactly due to market fears about the collapse of the banking system. The price fluctuations in this case are not related to the imbalance of supply and demand in the oil market itself. OPEC+ countries continue to follow the plan of reducing oil production by 2 million barrels per day until the end of this year.
At the same time analysts of Goldman Sachs hastened to change their forecast of oil price for the next 12 months from the previous estimate of $100 to $94 per barrel. However, because of the current decline in prices, Goldman Sachs strategists predict the beginning of an increase in oil production by OPEC countries only next year. Previously, analysts had expected an increase in production in the second half of this year. Consequently, a longer pause in the increase of oil production can support prices.
The RSI indicator is renewing its lows since early December and is very close to entering the oversold zone. The round level of 70 seems to be a good position for the "bulls" to increase their activity and for a certain rebound of oil prices upwards.
The following trading strategy option can be suggested:
Buy Brent oil in the 69.5-70.5 range. Take profit 1 – 72. Take profit 2 – 73. Stop loss – 69.
This content is for informational purposes only and is not intended to be investing advice.