The oil market experienced another massive sell-off on the news. Hedge funds had placed too much trust in Donald Trump’s policies but received sweeping tariffs instead. This is just one of the challenges faced by Brent. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Brent faces the most significant sell-off in three years.
- US tariffs will slow global demand.
- OPEC+ production increase puts pressure on oil.
- Short trades can be opened, adding them to the ones formed at $73.3.
Weekly Fundamental Forecast for Brent
In the oil market, speculators were confident that on America’s “Liberation Day,” Donald Trump would exempt his opponents and announce less severe tariffs than he had previously promised. The market interpreted the White House’s actions as a more significant threat than its words, enabling hedge funds to increase their net-long positions on Brent to the highest levels in 11 months. However, when investors faced a contrary outcome from the US President, they began to liquidate their long positions. The outcome was the most significant five-day sell-off in oil in three years, reaching the lowest levels since 2021.
Brent Crude Price Performance
Source: Bloomberg.
Markets tend to react to rumors rather than news. Therefore, the Brent price fell sharply amid a significant liquidation of speculative long positions. Tariffs and the ongoing trade war between the United States and China have created significant uncertainty for the global economy and oil demand. However, this is only part of the problem for Brent bulls.
Brent Net-Long Positions
Source: Bloomberg.
The US has reportedly reached an agreement with Saudi Arabia. OPEC+ has decided to increase the volume of production by 400K bps from May, following an increase of 138K bps in April. Consequently, the gap between monthly and semi-annual Brent futures narrowed from $3.53 per barrel prior to the tariff announcement to $0.98, marking the lowest point for the indicator since November. This development signals market concerns about diminished oil demand in the face of heightened supply.
Goldman Sachs has cautioned that Brent could decline below $40 per barrel amid an escalating trade war between the world’s largest economies. China is prepared to face significant headwinds, and the US has ruled out the possibility of negotiations with China. This approach contrasts with the willingness to engage in negotiations with other countries.
While some experts are pessimistic about the outlook for oil prices, leading companies in the oil industry are undeterred. They believe that market fluctuations are driven by fear and that the actual demand for oil is higher than current assumptions. The impact of the pandemic has underscored this perspective. While trade wars may potentially dampen consumption, the extent of the reduction is overstated.
While the attempt to maintain a positive outlook in challenging circumstances is commendable, it is important to acknowledge that Donald Trump’s protectionist policies will slow the global economy and dampen oil demand. As a result, the increased output from OPEC+ is likely to fuel the sell-off in Brent crude.
Weekly Trading Plan for Brent
In such conditions, it is better to keep short positions on Brent formed below $73.3 per barrel open, building them up on upward pullbacks. The targets are located at $58 and $54.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
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