Declining reserves and production restrictions will drive oil up

30 March 2023 202
Declining reserves and production restrictions will drive oil up

Yesterday, Brent prices almost hit the upside target in the range of 79-80, but profit-taking pushed the price down to 77. The bears might try to push the price a little lower to 76, but they are unlikely to be able to do more than that now. The news background and global oil market fundamentals are tilting towards higher prices.


Both the reduced supply of "black gold" and gradually growing demand are now playing in favor of oil prices growth. Concerning output, a plan of reducing oil production in Russia has almost been achieved. By this moment, the production has already dropped by 400 thousand barrels a day, and in the near future another 100 thousand barrels a day will be cut. The situation of halting oil exports from Kurdistan shows no signs of normalization soon, which is also a bullish factor for oil.


On the demand side, another positive factor is new reduction of oil reserves in the U.S. Last week, crude oil reserves decreased by 7.5 million barrels, and gasoline reserves fell by 2.9 million barrels. Meanwhile, forecasts of market participants had earlier suggested a growth in reserves. High demand for fuel is confirmed by the fact that the U.S. refineries are operating at more than 90% capacity, as well as by repeating this year's maximum volume of oil supply (20.5 million barrels per day).


Given the improved fundamental conditions, the bulls in the oil market may try to form a new uptrend on the Brent chart. The interval between 76-76.5 is an area of interest for long positions. Traders, as a rule, are not inclined to take excessive risks by the end of the week, which can provide a decrease of prices in the mentioned range.


The current upside target is the level of 79, but some more cautious market participants may take profits earlier at 78.5.


The following trading strategy can be suggested:


Buy Brent oil in the range of 76-76.5. Take profit - 78.5. Stop loss - 75.


Traders may also use a Trailing stop instead of a fixed Stop loss at their own discretion.

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

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