Brent oil price is finishing Q2 2024 on two-month highs near the level of 86. The entire drawdown of May and early June has been bought back by now, which contributed to a noticeable improvement in market sentiment. The correction at the beginning of the current week gave the bulls a pause, after which they continued to build up long positions on oil contracts. The next target of Brent oil buyers could become the level of 86.8.
Reuters analysts noted the return of hedge funds to the state that they were in before the OPEC+ meeting on June 2. Managers bought 69 million barrels of crude and refined products over the last week, with the net long position hitting the 300 million barrel mark. The figure is just 6% below the end of May and nearly double the low set in the first week of June. Traders have changed their expectations about OPEC+ actions, no longer forecasting a significant increase in crude production until the end of 2024.
On the part of US companies, there are also no expectations of a significant increase in oil production. More than 50% of respondents surveyed by the Federal Reserve Bank of Dallas forecast a decline in production within 5 years. Consolidation in the oil industry has already led to reduced investment in exploration, and the number of active drilling rigs is at its lowest since early 2022. According to the US Energy Information Administration, the country's crude production will grow by only 310 thousand barrels per day in 2024.
Meanwhile, demand for oil in Asia shows signs of improvement. According to Reuters, at the end of May the refining margins at Asian refineries reached a one-year low of $0.9 per barrel, but has recovered to $3.6 by now. Analysts attribute the increase in profitability to the restriction of export of oil products by some countries. In particular, China will reduce fuel supplies to the world market to 850–900 thousand tons by the end of June compared to the May volume of 1.03 million tons.
The Stochastic indicator on the daily chart of Brent gives a buy signal, confirming the development of an uptrend. Brent price could reach 86.8 in the near future.
The following trading strategy can be suggested:
Buy Brent at the current price. Take profit — 86.8. Stop loss — 84.3.
This content is for informational purposes only and is not intended to be investing advice.
