WTI oil successfully met the growth goal in the form of a round level of 80 by the end of last week. However, sellers became more active above this point, and the quotes of black gold began to decline. Both technical and fundamental factors are on the side of continuing correction now, at least to the 77.5 level.
Yesterday, two main factors hurt oil quotes. First, these are statistics on US inflation for January. Price growth was expected to slow down from 6.5% to 6.2%, but the actual data showed only a minimal decline to 6.4%. Core inflation also turned out to be worse than expected (5.6% vs. 5.5%).
Inflation statistics, together with strong data on the labor market, increase the probability that the Fed's spring tightening cycle may not end. Now, market participants began to expect a similar move in June, in addition to raising rates by 0.25% in March and May. And the higher interest rates, the stronger the dollar, which puts pressure on all commodities denominated in US currency, including oil.
Data on stocks of oil and petrochemicals, presented by the American Petroleum Institute (API) the day before, also upset the bulls. The level of oil inventories over the past week has risen by another 10.5 million barrels, and inventories of petrochemicals have also increased, albeit by a less significant amount. Today's official statistics from the Energy Information Administration may not be so pessimistic, but the direction of stock changes is generally in line with API data.
In addition to the fundamental negative, technical analysis also indicates a decrease in oil prices. The Stochastic indicator turned down just at the moment of reaching the overbought zone, and the intersection of its lines formed a sell signal. The nearest target for the bears is 77.5. In case of success, further movement to level 75 is possible.
We may offer you the following option of trading strategy:
Sell WTI oil in a range of 78.5-79. Take profit — 77.5. Stop-loss — 79.5.
Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.
This content is for informational purposes only and is not intended to be investing advice.