The rebound in Brent oil prices from the May lows stopped at the 38.2% Fibonacci level (77.6). At this level the sellers intercepted the initiative again, keeping the prices from breaking the downtrend line. Currently the price is under the level of 75 and may fall to the level of 73.7. Amid the current news background the chances for the prices to rise on Friday are low.
Pessimism at the oil market has increased after yesterday's Consumer price index release in China and the U.S. The Producer Price Index in the U.S. fell to a two-year low, while Chinese companies in April reduced prices at the fastest pace since May 2020. Such data is another evidence of mounting problems in the global economy and potentially lower fuel demand.
OPEC's monthly report, which was released the day before, did not significantly change market sentiment. The changes in forecasts were minor. An increase in Chinese demand by several tens of thousands of barrels per day is not going to be a significant factor for oil prices growth.
At the same time the oil prices volatility has considerably increased after the comments of the U.S. Secretary of Energy Jennifer Granholm. According to her, the Strategic Petroleum Reserve (SPR) may start to be replenished as early as in June, immediately after the end of planned sales. Previously it was planned to refill the SPR in the 4th quarter of this year.
However, many analysts considered such statements as a bluff. On the one hand, they are designed to reassure the representatives of the Republican party who are dissatisfied with the current level of SPR (minimum since 1983). On the other hand, the promises of rapid oil purchases may allegedly prevent an even greater OPEC+ oil production cuts. Meanwhile, we are most likely not going to see any real action from the U.S. officials in the near future.
The next downside target for Brent is the level of 73.7. In case the bears succeed, the range of previous local lows of 71.5–72.5 might be tested.
The following trading strategy can be suggested:
Sell Brent oil in the range of 74.6–75.3. Take profit — 73.7. Stop loss — 75.7.
This content is for informational purposes only and is not intended to be investing advice.
