Shorts Working Well – Brent Slips On Supply Concerns, EU Recession On Brexit

Brent crude price is down for a fifth day to as low as 49.47, after hitting the record high level of 52.98, formed on June 9, 2016.

Prices started to tumble when industry group Baker Hughes Inc. reported that oil rigs operating in the U.S. hit 328 in the week ending on June 10, an advance of 3 rigs and a sign that rising prices are luring shale producers back to the oil fields.

The oil market is now in balance thanks to unplanned outages in Nigeria, where regional militants have blown up pipelines, and Libya, which is struggling to emerge from conflict. Nevertheless, this equilibrium will tip into surplus again, especially as oil production in Iran climbed to five-year record high of 3.8 million barrels per day as shipments to Europe recovered to near pre-sanctions level. Moreover, the growing number of U.S shale producers poses a big threat to the current stability.

On the other hand, after a chain of opinion polls reported the “Leave” campaign being ahead of the “Remain” camp, the influential Sun newspaper also came out in support of Britain leaving the EU with a passionate front-page plea in favor of Leave. If England exits the European Union after the British referendum next week, investors fear the bloc could slip into a recession very quickly, which would undermine oil demand.

According to the report published by the U.S. Commerce Department on Tuesday (14/6), U.S retail sales ticked up by 0.5% in May, compared with analyst expectations for a rise of 0.3%. Furthermore, core retail sales, which exclude automobile sales, climbed up by 0.4% in May, in line with forecasts. As a result, the dollar surged strongly as the report indicated that the world’s largest economy was gaining steam despite a sharp slowdown in job creation. The rise in the value of the greenback also puts pressure on the crude oil price, as it makes dollar priced crude oil expensive for consumers.

Later Today (15/6), U.S. crude oil inventories will be published. Markets are still in a wait-and-see mode ahead of the British referendum on June 23 and the two-day FED meeting that ends later today.

brent d1

Fig. BRENT D1 Technical Chart

On the daily chart, the Brent price plunged sharply from the resistance at 52.98, heading downwards to level 23.6% of the Fibonacci retracement. The stochastics show that the %K line (blue line) has reached the oversold zone far ahead of %D line (red line). This represents strong selling power and confirms that the price will not reverse soon. However, the trend indicator still suggests a long position(since February 24) with the green arrow under the price chart. The commodity is expected to reach level 23.6% of the Fibonacci retracement before bouncing back.

Trade suggestion

Sell stop at 49.19, Take profit at 48.40, Stop loss at 49.87

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