Brent crude prices rebounded sharply from a one-month low at the end of Tuesday's trading session. They rose by almost 3%, and today the upward momentum continues. The price has already hit the 38.2% Fibonacci level (62.6), and now a path to the 50% (63.8) and 61.8% (65) levels is opening up for buyers. It is difficult to count on a stronger rebound, but this scenario may bring good profits to the bulls.
Yesterday, the US Energy Information Administration (EIA) published its monthly oil market report. Particular attention was paid to OPEC+ plans to loosen production quotas. EIA experts agree with the opinion that Saudi Arabia lobbied for this decision to penalize countries that chronically exceeded the previously agreed output volumes. Now compliant members of the cartel have an opportunity to increase production, while Iraq and Kazakhstan will have to compensate for their overproduction.
However, EIA analysts forecast a much smaller rise in oil supply than what was announced by the exporting countries. According to their estimates, OPEC+ members can raise the production level by only 200,000 barrels per day (bpd), which is less than half of the agreed volume. The EIA believes that only Saudi Arabia will be able to ramp up output so quickly, while other cartel members will need much more time.
In addition, the current price level is dangerously close to the cost of shale oil production in the US. Although the industry's largest players may ignore this for some time, mid-sized and small companies are getting concerned. Since the beginning of the week, Diamondback Energy and Coterra Energy officials have already announced a 10% decline in well drilling activity and their expectation of more contractions in the coming months. This will limit the US oil production growth and support its price.
The Stochastic indicator on the Brent oil daily chart signaled a buying opportunity. Traders can target the levels of 63.8 and 65.
Consider the following trading strategy:
Buy Brent crude at the current price. Take profit 1 – 63.8. Take profit 2 – 65. Stop loss – 61.3.
This content is for informational purposes only and is not intended to be investing advice.
