Brent oil quotes this week came under strong pressure and for the first time since the end of July fell below the level of 80 dollars per barrel. Since the highs of October, the oil price fell by 15%, and a growing number of market participants believe that this scale of downward movement is excessive. At yesterday's trading session, the bulls tried to seize the initiative. Although almost the entire daily gain was lost by the end of trading, it was possible to make the first step and stop the collapse.
The main reason for the current decline in oil prices is the easing of concerns about tensions in the Middle East. The scale of the conflict turned out to be not as serious as market participants assumed. The possibility of disruptions in oil supplies no longer stimulates additional demand from consumers. As a result, the geopolitical premium gradually disappeared from oil prices.
Release of weak economic data in China increased the risk of oil demand decline. Refineries in China asked Saudi Arabia to reduce the volume of crude supplies in December. However, Reuters analysts believe that the main reason for such a step is not weakening demand, but the exhaustion of Chinese refineries quotas for imports of crude oil and exports of oil products. If the Chinese authorities meet the needs of enterprises and expand quotas, oil consumption may return to the highs of August-September.
In turn, Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman believes that the fall in oil prices was provoked by speculators who misjudged the data from OPEC. According to him, the current increase in production and exports of oil is seasonal and is not related to quota violations by OPEC members. The minister again warned traders betting against oil about big losses due to underestimation of OPEC's influence on the price level.
On the daily chart of Brent oil, the Stochastic indicator has reached the oversold zone, and RSI is already forming an upward reversal. This increases the probability of quote's rebound. The first target will be the mark 81.5, and then the level of 83.5.
The following trading strategy may be offered:
Buy Brent oil at the current price. Take profit 1 – 81.5. Take profit 2 – 83.5. Stop loss – 79.
Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.