Brent oil prices are heading towards the key level of $100 per barrel. There is less than 6.5% left to the target, but reaching it without at least a small correction will be rather difficult. Over the past 3 weeks oil prices have risen by almost 15%, and technical indicators are in the strongest overbought condition since April. Fundamentally, the increase in oil prices is quite justified, but now it is better to wait for a pullback to the 91–92 area to set long positions.
Oil prices are rising amid supply cuts from Saudi Arabia and Russia. As the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) warned this week in their monthly reports, the market will experience severe shortages for the remainder of the year.
Yesterday's news from the U.S. and Europe supported oil's rise. The ECB unexpectedly raised the key rate by another 0.25%, but regulator's head Christine Lagarde said that the monetary policy tightening was sufficient. Market participants no longer expect additional rate hikes in Europe. In turn, U.S. statistical authorities reported a 0.6% increase in retail sales in August, considerably better than the forecast of 0.2%. Sustained consumer demand is favorable for oil.
By the end of the working week, China also published positive data for the oil market. Today the country reported a decline in the unemployment rate from 5.3% to 5.2%, as well as an acceleration in industrial production growth from 3.7% to 4.5%. Traders had expected a more modest increase to 4%. It seems that an intensification of business activity in the fall along with stimulus measures by the Chinese government are finally having a positive impact on the country's economy.
As already noted, the current overbought condition of the RSI indicator makes purchases of Brent oil increasingly risky. To raise the reliability of the transaction it is better to wait for a small correction, approximately to the range of 91–92. In this case, the growth target will be the 95 level.
The following trading strategy may be offered:
Buy Brent on a pullback to the 91–92 range. Take profit – 95. Stop loss – 90.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.