Oil's plunge on news from Angola quickly bought back

22 December 2023 168
Oil's plunge on news from Angola quickly bought back

The oil market experienced a very volatile trading session on Thursday. Brent oil prices fell by 2% at some point, but by the end of the day the entire drawdown was bought back. On the threshold of the long weekend traders did not actively pressure the price. Instead, they preferred to increase long positions on oil. It seems that market participants consider buying oil cheaper than 80 dollars per barrel very profitable, despite the local deterioration of the news background.

 

The main source of negativity for oil prices was Angola. Oil Minister Diamantino Azevedo announced the withdrawal of the African country from the organization of exporting countries (OPEC). According to him, Angola does not benefit significantly from membership in OPEC and will now pursue its interests independently. The decision is likely due to dissatisfaction over the too small oil production quota set for Angola for 2024 under the OPEC+ agreement.

 

The initial reaction to Angola's decision resulted in a sharp drawdown in oil prices. Nevertheless, gradually the excitement began to fade, and the cost of oil returned to the initial positions. UBS analyst Giovanni Staunovo noted that the news is negative, but the leading OPEC+ countries stick to their commitments to reduce production. Therefore, the fundamental situation on the oil market should not change significantly.

 

Moreover, even as a member of OPEC+, Angola chronically failed to bring its oil production to its quota. Now the country produces about 1.1 million barrels per day - almost half of the 2008 record level of 2 million barrels. Even if the Angolan authorities now decide to dramatically increase oil production, it will take several years to see noticeable results.

 

The quick buyback of yesterday's drawdown suggests that the oil market remains moderately positive. The technical picture is also leaning towards growth: the RSI indicator is rising, while being in the area of 50 points. The next target for the bulls could be the level of 81.5 for Brent.

 


Consider the following trading strategy:


Buy Brent oil at the current price. Take profit - 81.5. Stop loss - 78.


Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion

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

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