Brent oil prices failed to continue the upward movement after a sharp rise at the beginning of the week. Buyers are taking profits above 88 dollars per barrel, and sellers are opening short positions. Friday is characterized by lower demand for risky assets, so today it is possible to see a pullback in the oil price to the level of 85.
The oil market participants continue to analyze yesterday's monthly report of the International Energy Agency (IEA). Representatives of the organization are more pessimistic about oil demand than OPEC analysts. According to the IEA, in 2024 the world’s consumption of oil will increase by only 880 000 barrels per day, while the OPEC estimate is 2.5 times higher. It amounts to 2.25 million barrels per day.
The IEA analysts express the opinion about the destruction of oil demand due to prices being too high for developing countries of Asia and Africa. September's rise in the oil price to almost 100 dollars per barrel significantly reduced demand in Nigeria, Pakistan and Egypt. Consumption has also fallen in some Western countries, including the U.S.
At the same time, the U.S. oil market is facing not only a decrease in demand, but also an increase in production of raw materials. According to the latest weekly report of the Energy Information Administration (EIA), the oil production in the U.S. increased by 300 000 barrels per day and reached a new historical high of 13.2 million barrels per day. Thus, the previous record held since March 2020 was broken. An increase in production along with a decline in exports led to a sharp increase in oil reserves by 10.2 million barrels. The data put pressure on the oil price.
Due to the growth impulse of the Brent oil price at the beginning of the week, the RSI indicator has left the oversold zone and is not preventing a corrective pullback. The bears' target will be the area of 85.
The following trading strategy may be offered:
Sell Brent in the range of 87 - 87.5. Take profit – 85.2. Stop loss – 88.2.
Also, traders can use a Trailing Stop instead of a fixed Stop loss at their discretion.