Oil price starting pullback from six-month highs

This week, Brent price updated the highs of July last year, reaching the level of 82.6. Oil buyers started taking profit during yesterday’s trading session, considering that it exceeded 10% since the beginning of January. Overheated technical indicators also show that price correction is highly probable. For it to be eliminated, the quotes should pull back to at least $80 per barrel. 

The oil market participants are analyzing the consequences of new US restrictions on Russian crude exports. According to Bloomberg, India and China have accelerated efforts of searching for alternative oil sources amid possible supply cuts. Iraq, UAE, and Kuwait have received requests for additional oil supplies. However, the current situation shouldn’t be a problem since OPEC+ has more than 5 million barrels per day of spare production capacity at its disposal.

Reuters analyst Clyde Russell does not see any reason for panic and for a sharp rise in raw material cost. The global oil market has repeatedly shown its ability to adapt to any restriction. Besides, Russell draws attention to an active accumulation of oil reserves in China in recent months. In the context of rising prices, China’s refineries can well afford to reduce imports and use previously created stocks of raw materials.

Moreover, oil demand in China is falling, even without taking into account recent events. According to the National Bureau of Statistics of China, oil refining throughput decreased by 1.6% and reached 708.43 million tons in 2024. The dynamic was negative for the first time in 20 years (excluding the pandemic period). The rise of electric vehicles in China is reducing demand for gasoline, and the real estate sector crisis is putting pressure on diesel consumption.

The RSI indicator and the Stochastic Oscillator show a high probability of correction of Brent quotes. The nearest target of the bears may be the level of 80.     

Consider the following trading strategy:

Sell Brent at the current price. Take profit – 80. Stop loss – 82.6.