Brent sell

Technical overbought may halt oil price growth

06 September 2023 190
Technical overbought may halt oil price growth

Positive news on the oil market caused strong volatility in quotations yesterday. The trading session closed around 90 dollars per barrel, which is a new high for the current year.

Saudi Arabia and Russia extended the voluntary reduction of fuel exports until the end of 2023. For investors, this news came as a surprise. Analysts expected the agreement to be extended only for October.

The voluntary oil production cut made by the leader of the Organization of Petroleum Exporting Countries (OPEC) is followed by an April decision, which was agreed upon by several OPEC+ members.

Russia and Saudi Arabia intend to review the export cut each month. These actions will allow the countries to discuss the possible deepening, reducing, or increasing oil production due to the market conditions.

Oil prices were expected to rise sharply but failed to consolidate near the highs. This raises doubts about whether the current rally will continue.

As we have said several times, the oil demand in China remains quite strong. However, this was observed at the low oil prices. The situation may change in the coming months.

In August, oil imports are expected to recover compared to July. Refinitiv Oil Research estimates that crude supplies increased to 11.7 million bpd. In July, oil supply figures fell to 10.3 million bpd. 

The growth of imports is positively affected by the cost of raw materials. However, it is necessary to highlight the unstable demand. Current high prices may hurt the volume of supplies in September.

According to the technical analysis, the oil chart has updated the annual highs and overcome the main resistance. However, as noted above, the closure of the trading session was weak. Therefore, there is a high likelihood of retesting the resistance level. Also, the oscillator RSI situated in the overbought zone indicates the probable correction. The indicator shows the resistance level.

The downside target will be the price of 87.75. It corresponds to the upper boundary of the sideways range from the beginning of the current year.

A stop-loss will be set at the renewal of yesterday's high at the level of 91.20 dollars. In this case, the active growth of oil prices will continue.

Decrease in Brent oil:

Take profit — 87.75

Stop-loss — 91.20

This content is for informational purposes only and is not intended to be investing advice.

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