According to the latest forecast, Brent crude oil prices managed to rebound from monthly lows and exceed the level of $80 per barrel. However, the downtrend resumed along with the beginning of the new week, and oil prices were again around the 78 level. Despite the fact that most of yesterday’s decline was eliminated by the end of the trading session, the oil market remains negative.
The prevalence of sales among yesterday's bids in the oil market was driven by the released statistics on China’s business activity. April’s data showed the decreased activity in both service and industry sectors. Moreover, in the second case PMI unexpectedly indicated the lowest figure since last December. Such statistics clouds the prospects of fuel demand growth in China.
Refinitiv Oil Research estimates Chinese crude oil imports in April at 10.77 million barrels per day compared to a 34-month high of 12.37 million barrels per day in March, as refinery maintenance reduced demand. But even in the first quarter of 2023, which demonstrated China’s 6.7% increase in oil purchases, domestic consumption did not show a strong rebound. As a result, most oil was processed and exported to other countries as petroleum products.
All aforementioned data stress an uneven nature of the world's second-largest economy’s recovery. The lower-than-expected growth rate of China’s industrial production may have a negative impact on commodity imports. This will put pressure on oil prices at least in the short term.
The fall in oil prices over the past few weeks has formed the downtrend, and they are now close to the trend line. Currently, the main scenario is to move to 78.5 and 78. The downside scenario will be canceled if the price consolidates above 80.5.
The following trading strategy may be offered:
Sell Brent crude oil in the range of 79.5–79.9. Take profit 1 – 78.5. Take profit 2 – 78. Stop loss – 80.5.