Brent crude oil prices, even with a one-day delay, surged on the plans of Saudi Arabia and other OPEC+ members to extend production cuts. The price rose above the 76 level, but the strong resistance range of 76.5–77 blocks the further upward movement. It's been 2 months since these levels caused a downward reversal in oil prices, and now this scenario is highly likely to be repeated.
Saudi Arabia, the world's largest oil exporter, said it will extend production cuts of 1 million barrels per day until late August. At the same time, Russia and Algeria will also reduce production and exports by 500,000 and 20,000 barrels per day respectively. However, such measures no longer raise expectations of a strong increase in oil prices. On the contrary, they are seen as bearish signals, confirming the deteriorated demand outlook.
Demand is what worries oil market participants the most. The downtrend of business activity indices of the world's leading economies suggests restrained consumption of energy resources. U.S. manufacturing PMI is already at its lowest since spring 2020, when industry was under the strongest pressure from COVID-19 restrictions. Experts predict that business activity will continue to decline over the next few months.
Industrial energy consumption has a direct correlation with manufacturing and transportation activity. The freight and manufacturing sectors account for more than 75% of all diesel fuel and other petroleum products consumed in the U.S. Although China's demand has so far remained steadily high, oil market analysts are concerned about its future dynamics as well.
Brent prices have every chance to rise slightly higher to the range of 76.5–77. Nevertheless, an attempt to break this resistance is likely to activate bears and further pullback of the price. The Stochastic indicator is slowing down and in the near term will give a sell signal. The level of 75 might be the target for opening short positions.
The following trading strategy may be offered:
Sell Brent when the price rises in the 76.5–77 range. Take profit – 75. Stop loss – 77.5.
This content is for informational purposes only and is not intended to be investing advice.
