The new week for Brent oil prices started with a corrective decline to the level of 84. After the decision by OPEC+ to further limit oil production, the price formed a flat with the upper boundary of 85.5 and the lower boundary of 84. Until new triggers appear for a strong directional move, the price would remain in the current range. Thus, traders can use rebound trading tactics within the range limits.
U.S. labor market's strong data was perceived by oil market participants moderately negatively. The reason is that it was the last report of a kind before the next Fed meeting on May 3, and the probability of another 0.25% interest rate hike has now increased to almost 70% (before the figures release on Friday it was less than 50%). The Fed's tighter monetary policy has a negative effect on consumer demand, including the demand for fuel.
Some oil market analysts see the recent OPEC+ actions as an attempt to get ahead of the reduction in oil demand in Western countries and prevent prices from falling even lower. Despite recent events, Ed Morse of Citigroup believes there is a good chance of a new drop in oil prices below $80 per barrel.
According to Morse, economic recovery in China is slower than expected. Significant growth in demand for oil from China can be expected at best by the end of the year. Besides, according to the representative of Citigroup, investors underestimate the influence of oil production growth in Iran and Venezuela, which were not affected by the OPEC+ reduction.
The range of 85–85.5 can be suggested to open short positions. The downside target is the lower boundary of the flat. That is the level of 84. The RSI and Stochastic technical indicators have formed a reversal and confirm a sell signal.
The following trading strategy can be suggested:
Sell Brent oil in the range of 85–85.5. Take profit — 84. Stop loss — 86.
Traders can also use Trailing stop instead of fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
