At today’s market opening, oil, including Brent, showed a sharp decline in the form of a gap of 280 points. The reason for this decline is a significantly lower geopolitical risk premium and it’s due to the fact that the market assesses the risk of further escalation in the Middle East as rather limited.
The fall in tensions comes as Chinese commodity producers focused on traditional industries continue to bear the brunt of the country’s economic downturn, with crude oil refiners in particular continuing to suffer losses.
According to data for September released by the statistics bureau on Sunday, cumulative losses in the oil refining sector rose to 32 billion yuan during the period. Overall profits of industrial enterprises declined at a faster pace than a month earlier.
Refineries are cutting production as weak fuel demand is exacerbated by the rapid spread of electric cars in the country. China wraps up its third-quarter reporting season this week, and oil and gas companies are expected to show significant losses.
Nevertheless, from the technical point of view, gaps like today’s one suggest a corrective movement, which will close part of the formed price gap. And the most probable target of such correction will be the level of previous local lows, which is the mark of $73.5 per barrel of North Sea oil. This is a rather strong medium-term level, which began to form in mid-September, during this time the price has repeatedly tested it both from above and below, so another return to it is very likely.
The final recommendation is to buy Brent oil.
The profit could be fixed at the level of 73.50. The Stop loss could be placed at the level of 71.40.
The volume of the opened position should be set so that the value of a possible loss, defined with a protective stop order, doesn’t exceed 2% of your deposit.
