Brent Changing Trend – Price Plunges On Supply Concerns, Dwindling Demand

Brent Crude slid to a two-month low of $46.76 after hitting the resistance at $52.93 per barrel over signs of a rise in the number of U.S shale drillers and weakness in Asia’s economy.

According to the data from Baker Hughes Inc., the number rigs in the U.S. rose by 10 to 351 in the week ended on July 8 – the highest level in 12 weeks. Moreover, the weekly crude oil inventory report on July 7, 2016 from the EIA reported that US crude oil inventories decreased by 2.2 million barrels to 524.4 million barrels for the week ending July 1, 2016 , just below a 2.3 million-barrel decline forecast by analysts. This figure was far lower than a 4.1 million-barrel draw for the week ended June 24, 2016. Both of last week’s oil indicators gave little sign of potential improvement in the oil price, with the number of U.S oil-rigs and inventories still at significantly high levels.

The Brent price also suffered further setbacks following weak demand data from Asia. On Sunday (10/7), the report from National Bureau of Statistics of China indicated that its consumer price index in June advanced by 1.9%, the slowest pace since January. The monthly CPI reading is still below the 2016 target of 3%, indicating a continued economic slowdown and weak demand in Asia’ largest economy.  Additionally, the country’s producer price index declined by 2.6% in June, compared with a 2.8% drop in May.

Meanwhile, in Japan, data from Cabinet Office reported that core machinery orders unexpectedly fell 1.4% in May from the previous month, down for a second straight month. A slump in the number of purchase order means that manufacturers will not boost be able to boost activity, since they do not have many orders to deliver.

Furthermore, a stronger dollar also weighed on the oil price. On Friday (8/7), the Labor Department had released the all-important U.S non-farm payrolls for June. The statistic increased by 287,000 jobs last month, the largest gain since last October. This helped relieve investor worries over shockwaves from the May payrolls reading of only 38,000 jobs. The advance in the non-farm employment number confirms the U.S economy’s recovery, which has lifted the dollar index .DXY to 96.65.

In the week ahead, oil traders will be focusing on U.S. stockpile data on Tuesday and Wednesday for supply-and-demand signals.

brent d1

Fig. Brent D1 Technical Chart

On the daily chart, the moving average is casting a shadow over the price chart, suggesting that the bearish trend is taking the lead. ADX (14) rallying to 25.1416, along with DI- above the other lines, is further consolidating the downtrend. Moreover, the trend indicator has changed its direction with the red arrow appearing above the price chart since July 7, 2016, suggesting a short position. The level 38.2% of Fibonacci retracement is anticipated to be tested.

Trade suggestion

Sell stop at 45.96, Take profit at 45.45, Stop loss at 46.18

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