Oil Pressured by Demand

Early in the final January week, Oil isn’t looking very good, although it might have been much worse. Brent is currently trading at $55.50 USD but mostly falling due to the concerns that the demand for energies may remain pretty low for quite some time.
 
Investors are worried about the statistics on the number of new COVID-19 cases in China. For example, the daily growth is 120-125 cases and that’s quite the same as it was last July. Another risk is the Lunar New Year, which is traditionally celebrated in China for about a week. One shouldn’t exclude the possibility that the number of new cases may increase exponentially during this period. China is the leading oil importer in the world, so the risks of aggravation of the epidemic situation really exist and are quite real for the oil sector.
 
In addition to that, there are rumours about the introduction of more strict quarantine restrictions in France where the authorities can’t take the coronavirus spread under control. All these things taken together are a limited negative factor for energy prices.
 
In the H4 chart, Brent is still consolidating around 55.50. Possibly, the asset may fall towards 54.10 and complete the correction there. Later, the market may form one more ascending structure to break 56.30 and then continue forming the third wave to the upside with the short-term target at 58.50. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line has broken 0 to the downside, thus implying the completion of the correction and a further decline in the price chart.
 

 
As we can see in the H1 chart, after completing the descending wave at 54.50 along with the ascending structure towards 55.50, Brent is consolidating below the latter level. If later the price breaks this range to the upside, the market may start another growth with the target at 56.30; if to the downside – fall towards 54.10 at least and then resume moving upwards to reach the above-mentioned target. After that, the instrument may continue growing towards 58.50. From the technical point of view, this idea is confirmed by Stochastic Oscillator: its signal line is moving close to 80, which means that the market is trading within the “overbought area” and may start a new decline towards 50.
 


Author: Dmitriy Gurkovskiy, Chief Analyst at RoboForex
 
Disclaimer
Any forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.