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    Technical Analysis #C-BRENT : 2016-05-05

    Weak data may point to lower demand

    Brent oil prices edged lower on Wednesday for the 4th straight day amid higher OPEC production volumes and US stockpiles. Will the prices continue looking down?

    Oil production in OPEC countries rose in April to 32.64mln barrels a day, up from 32.47mln in March. According to Reuters consensus forecast, the average price for Brent oil will be $42.3 a barrel in 2016 and for WTI oil — $40.5. In 2017 the prices are to reach $56.4 and $54.1 respectively. At this moment since the start of the current year the average Brent price is 38.4 a barrel while WTI is $37.2 a barrel. We believe the current higher quotations do not contradict the forecasts. Nevertheless, the downside correction may take place due to the possible lower demand for oil. The increased US oil stockpiles evidence that. According to Energy Information Administration, the oil stockpiles rose 2.8mln barrels in a week which is above their expected rise of 1.7mln barrels. Moreover, the gasoline stocks rose 536 thousand barrels while their fall of 144 thousand was anticipated. The US economic data point to the slowdown which may weigh on demand. The factory orders came out on Wednesday being above the 50year low hit in February but still 5% below the March 2015. Moreover, the ADP independent agency data point to the sharp slowdown in US payrolls increase in April. If this information is supported by the official data on Friday, it may become an attribute of US economic weakness. In April US oil consumption was 19.43mln barrels a day or 20.6% of the world consumption. We believe that even its minor cut-back may have a negative effect on prices. Nevertheless, no catastrophic slump in oil prices in expected as several countries including US, Venezuela and Libya have cut oil production volumes.

     

    Brent

    On the daily chart Brent: D1 has hit a fresh 6-month high. It is in uptrend and is correcting towards its lower boundary. The MACD and Parabolic indicators give signals to sell. The RSI ha formed the weak negative divergence and fell below 50. The Bollinger bands have contracted which means lower volatility. The bearish momentum may develop in case the oil prices fall below the last fractal low, 1st Fibonacci level and its 200-day moving average at 42.9. This level may serve the point of entry. The initial risk-limit may be placed above the 6-month high, upper boundary of the rising channel, Parabolic signal and the last fractal high at 48.3. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 48.3 without reaching the order at 42.9, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

     

    Position Sell
    Sell stop below 42.9
    Stop loss above 48.3

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