At the beginning of Friday's trading session, Brent crude oil quotes showed a sharp growth momentum of more than 4%, reacting to a new surge in tensions in the Middle East. Nevertheless, the situation in the oil market is gradually normalizing, and the price has now lost more than half of its morning gains. Sellers have once again activated above the level of 90 dollars per barrel, preventing oil prices from consolidating at six-month highs.
Obviously, current oil prices do not suit the leading consumers of raw materials. The U.S. authorities have intensified their verbal interventions in recent days, trying to reduce the agitation in the fuel market. In particular, the idea of resuming oil sales from the strategic reserve was mentioned again. With the presidential elections approaching, U.S. officials will do their best to curb the rise in oil prices.
The situation with oil demand in China also remains uncertain. According to Reuters, in the first quarter of this year, imports of oil in China decreased slightly from 11.06 to 11.02 million barrels per day. Worse, this indicator was achieved only due to an increase in purchases of oil into reserves from 570 000 to 790 000 barrels per day, and not due to an increase in consumption. This somewhat contradicts the market's view of high demand for oil in China.
Meanwhile, U.S. oil producers are preparing for a further increase in production. The Energy Information Administration (EIA) forecasts shale oil production in May to rise to its highest level in 5 months - 9.86 million barrels per day. In the future, oil production will continue to increase due to improved well utilization and the recovery of activity after the suspension of operations due to severe frosts in January 2024.
As Brent oil quotes approach the level of 90, the appeal of opening short positions is growing. While the bulls cannot break into the 93–94 range, the most likely scenario is a price pullback to the level of 87.
The following trading strategy may be offered:
Sell Brent oil in the 89–90 range. Take profit – 87. Stop-loss – 91.5.
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.
