Oil prices are developing a correctional movement after a sustained growth. The drivers of increase in oil prices have been implemented in the form of OPEC+ production reduction. Now market participants are looking for new stimuli for growth, and there are not many of them in the market. In a pre-election year, this is bad news for the current government.
The U.S. President Joe Biden promised to reduce gasoline prices in the country. Last week, updated data on consumer inflation in the country showed its growth by the maximum value for 14 months. Predominantly, the jump of inflation was caused by the rise in oil prices.
According to the American Automobile Association, the cost of gasoline in the U.S. is now about $3.85 per gallon. It was $0.15 cheaper last year.
Stable domestic supplies can help realize the price reduction plan. Previously, Biden borrowed crude from the U.S. Strategic Petroleum Reserve to stabilize them. As a result, the volume has fallen to its lowest level in decades.
Lower fuel prices are likely to mean a correction in oil.
Hedge funds also limit the opportunities for further growth.
They returned to the oil market with the most bullish rates for the last 15 months.
According to analysts, the fundamental factors in the oil markets remain strong. The rally of fuel prices is taking place despite the release of weak economic data from China.
As experts predict, in the next months, reduction of inventories will be the main driver of oil prices. Oil production cuts will create conditions for a price rally.
However, optimism of investors may turn out to be a bearish factor for oil prices. There is not enough fuel for further growth, as more and more traders stick to their positions. Therefore, the scenario of correction continuation looks logical.
According to the technical analysis, oil prices are forming a "shooting star" candlestick pattern. The correction target will be the first Fibonacci level of the whole growth wave at 0.236. It corresponds to the price of $90. In case of updating the current highs, a Stop-loss should be set at the level of $96.
Brent oil price is likely to decline:
Take profit – 90
Stop-loss – 96