Oil prices still cannot overcome the key resistance levels to develop upside momentum. The flat movement in the range of $72–77 has been relevant for a month and a half now. Rising oil demand from China and India were registered over the past two quarters, it balanced declined consumption in Western countries. Currently, economic growth momentum in Asia is fading, and additional stimulus is needed to continue the recovery.
In recent trading sessions, China has signaled possible economic stimulus through key rate cuts. However, the policy easing was weaker than projected and caused oil to fall.
On Tuesday, China's central bank cut its benchmark rate less than the markets had expected. This increased concerns over the outlook for oil demand in the country. China decreased the rate by 10 basis points. However, 50% of respondents polled by Reuters forecast it to fall by 15 basis points.
According to Tina Teng, market analyst at CMC Markets, rate cuts were widely expected. Therefore, it did not give the oil market a bullish momentum.
Although China’s monetary policy has started to ease, its potential is rather limited. Thus, the economic growth potential remains low, and oil demand will rise quite modestly.
The slow rollout of stimulus measures in China is increasing concerns related to weakening economic growth. This year, Goldman Sachs Group Inc. decreased its growth forecast for China’s economy from 6% to 5.4%. As specialists stated, any stimulus measures will be smaller than previously. This is due to the shrinking population and President Xi Jinping's calls to curb real estate speculation.
According to the technical analysis, oil currently has exhausted its upside potential. Resistance prevents it from rising above $77. The support levels will be determined through Fibonacci within the current flat movement.
The downside target will be the 0.5 Fibonacci level, which corresponds to the price of $74.9. A stop-loss will be set at rising to the nearest level of $76.8. The increase to this level will mean the break of the downtrend and the formation of the growing momentum.
Brent oil is likely to decline:
Take profit – 74.9
Stop-loss – 76.8