Oil started a week with a strong growth momentum by more than 4%. It has already managed to offset more than half of its losses from the massive sell-offs that took place in mid-March. The price of Brent crude hit 78, renewing January’s local lows. A corrective pullback is likely to happen next, followed by a new attempt of the "bulls" to break through the 79-80 range.
Oil prices have been pushed higher on the news from the Middle East. Iraq won the dispute with Turkey over the breach of oil exports agreement. Turkey responded by blocking the transit of Iraqi oil through its territory. The pipeline from Iraq to the Turkish port of Ceyhan used to pump 450,000 barrels of fuel per day.
Kurdistan's oil producers do not have much storage capacity. That's why the transit through Turkey will either be restored in the next few days, or the companies will have to cut down their production, or halt it completely, since there is no place to store. Oil market players seem to be betting that this issue won't be resolved fast enough, and energy disruptions from the Middle East might have a major effect on world prices.
But even the worst-case scenario suggests that the volume of undersupplied crude wouldn’t exceed 0.5% of the global production, so the positive reaction of buyers is more of an emotional nature. There are no significant changes in the supply and demand fundamentals, and partial profit taking by the "bulls" appears to be a probable outcome in the oil market.
The target for a corrective pullback could be the level of 76.5, where the annual lows stood at prior to the sell-off in mid-March. If the news background doesn't change, then the growth attempts may resume.
The following trading strategy can be suggested:
Sell Brent oil in the 77.5-78 range. Take profit – 76,5. Stop loss – 79.
Traders may also use Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
