The Brent oil price, a little short of the 82 level, reversed and began to correct. After 2 weeks of steady growth, the price could use some pullback, at least to get rid of overbought sentiment. The correction target could be the range of June highs: 77–77.5. A deeper decline is not in the offing, as the fundamental factors of the oil market are on the side of the bulls.
Yesterday's decline in oil prices was due to the resumption of production at a large Libyan field and weak data on China's economic growth for the second quarter of the year. GDP grew by 6.3% year-on-year against a forecast of 7.3%. Retail sales also performed worse than expected. The economic growth in China lags behind forecasts, which negatively affects the estimates of oil demand in the country.
Several Wall Street banks lowered their forecasts on China’s economic growth amid a batch of negative statistics from the world's largest oil importer. According to Warren Patterson, head of commodities strategy at ING Groep NV, China's economic performance and traders' reactions highlight a major problem of the oil market — lack of demand.
The US statistics may improve expectations for oil consumption. The figures on retail sales and industrial production for June are going to be released today. Forecasts suggest positive changes compared to May: the monthly retail sales are expected to rise from 0.3% to 0.5%, and industrial production — from 0.23% to 1.1%. If the actual data does not meet expectations, the trading session in the oil market may end with another decline in prices.
The nearest downside target for the Brent oil price is the range of 77–77.5. This corrective pullback could help to eliminate overbought sentiment. At the same time there would be a chance for a new wave of growth after the bears close some short positions.
The following trading strategy can be suggested:
Sell Brent oil at the current price. Take profit 1 — 77.5. Take profit 2 — 77. Stop loss — 79.5.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
