According to the previous forecast, Brent crude oil prices continue to decline. However, a moderate decrease turned into a serious fall during the trading on Tuesday and Wednesday, resulting in an almost 10% loss in oil prices. Massive sales stopped only at mid-March lows, from which bulls are attempting to rebound today. The main negativity is likely to be already factored in the current prices, so it will be much easier for oil to rise now.
Bears in the oil market are now primarily focused on the probability of a global economic recession and an associated decline in demand for fossil fuels. However, the actual data does not quite correspond with this pessimistic outlook. Thus, crude oil inventories in the U.S. have decreased for the third week in a row. At the same time, even with oil sales from the strategic reserve, which amounted to another 1.3 million barrels, the inventory level is decreasing.
Fears of the recession distract market participants’ attention from the significantly limited level of oil supply. Additional OPEC+ production cuts have only come into effect since early May, and their consequences will gradually manifest themselves somehow. Besides, there is not much time left until the next OPEC+ meeting on June 4, where production quotas may be revised again, if necessary.
The current price level makes the U.S. producers consider reducing oil production. Due to a surplus of hydrocarbons, companies are forced to cut the volume of drilling new wells in order to balance production and consumption of raw materials. The decline in drilling activity will definitely affect the sector’s productivity, even if with a certain time lag.
The RSI indicator has entered the oversold zone on the daily Brent oil chart for the first time since December 2021. This fact increases the likelihood of the rebound in prices. The first target will be the 23.6% Fibonacci level (75.2).
The following trading strategy may be offered:
Buy Brent oil in the range of 72–73. Take profit – 75.2. Stop loss – 71.5.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
