Global oil prices are correcting in a rectangular channel. Uncertainty about China’s economic recovery has overweight market concerns on the OPEC+ production cuts and reduced number of active oil and gas drilling rigs in the U.S.
After the data release for May, showing a slowdown in China’s economic recovery, some major banks have lowered their forecasts for the country’s GDP growth for 2023.
Thus, China’s oil stocks increased by 1.77 million barrels per day. This is the highest since July 2020.
Usually to estimate the state of China’s oil market the volume of imports and refinery throughputs are observed. In recent months both of these indicators have been at high levels.
Higher imports and refinery’s start-up are obviously bullish signals. However, a meaningful storage restocking might be a midterm or longterm bearish indicator. The large inventory levels will give Chinese refinery companies more freedom in the face of rapidly rising prices.
Reuters’ sources say additional measures to stimulate the second-biggest economy in the world will be introduced this year. However, concerns over capital flight and debt accumulation will limit support from the government.
Meanwhile, U.S. energy companies have again reduced the number of active oil and gas drilling rigs. Their amount has declined for seven weeks in a row, the first since July 2020. This gives some support to oil prices, as well as the OPEC+ production cuts.
ANZ analysts also highlight a rise in U.S. gasoline demand, which increased to 9.24 million barrels per day last week, the highest since December 2021.
The fundamentals are keeping oil prices in the corrective rectangle.
Brent prices are in the 71.50–78.50 range on the H4 timeframe. There is downside resistance in this correction. A pullback from trend resistance will give a signal to sell Brent oil.
The short-term outlook for Brent suggests selling around the level of 77.25.
The target is at the level of 72.05.
Part of the profit should be taken near 74.25.
The Stop-loss is set at 78.70.
Bearish trend has a short-term character, so the trade volume should not be more than 2% of your balance.