Yesterday, Brent crude oil experienced the most significant fall over the past month and a half. The prices declined by more than 3.5% and reached late March levels, when no one knew about additional production cuts by OPEC+. Certainly, a slowdown in economic growth in most countries is a substantial negative factor for oil, but the current price decrease looks excessive.
Initially, the OPEC+ decision caused discontent among oil importers, fearing higher prices. However, now the organization’s opinion on the necessity of production cuts to prevent oil oversupply has been confirmed. Market sentiment worsened due to fears of a recession in the U.S., as well as expectations about new rate hikes by central banks in May.
At the same time, the world has not yet faced the real consequences of declining oil supply, as OPEC+ production quotas will be reduced from May. If these measures do not have a significant impact on the oil market balance, the exporting countries might take even tougher steps.
Gary Ross, hedge fund manager at Black Gold Investors LLC, believes that OPEC+ will closely monitor the price dynamics in May. If Brent prices will not consolidate above $80 per barrel, a scenario with even larger cuts in oil production after the OPEC+ meeting in June is quite possible.
The U.S. statistics indicate rather high demand for fuel. Crude oil stocks decreased by more than 5 million barrels over the past week, along with gasoline and distillate stocks. The start of the summer travel season might further support demand.
Brent prices have another correction target at the 61.8% Fibonacci level (76.8). The wave of decrease might be over there, and on the rebound, buyers' targets will be 78.8 and 80.
The following trading strategy may be offered:
Buy Brent crude oil in the range of 76.8–77.8. Take profit 1 – 78.8. Take profit 2 – 80. Stop loss – 75.9.
This content is for informational purposes only and is not intended to be investing advice.
