Chapter 38 07/19 WTI: The Worst of the Crude Oil Market Is Over?
Abstract: On Wednesday, the crude oil market was thin. Investors are balancing the signs of tightening in the global crude oil market under the unstable economic outlook.
Fundamentals
On Wednesday, WTI crude oil rose 0.5%, and the trading volume was thin. As Russian crude oil shipments fell to a six-month low in the four weeks ending July 16, crude oil prices rose in the previous trading day. These restrictions indicate that Russia is fulfilling its commitment to control supply with its OPEC+ partners.
In the past few months, oil prices have been hit by investors balancing the recovery of China's recovery with OPEC+ and Russian production cuts, as well as the expectation that the Fed may soon end its interest rate hike cycle.
Since the end of June, the price of crude oil has made a decisive breakthrough. There are signs that the market may finally tighten, and the weak price seems to be a thing of the past. Traders seem to realize that the market will tighten sharply from this month due to reduced supply and improved demand, but the prospect of economic recession in the U.S. and the eurozone, coupled with slowing demand in China, is expected to bring resistance to the continued upward trend of prices.
The EIA crude oil inventory report originally scheduled to be released on Wednesday may show that the inventory will decrease by 2.44 million barrels after the unexpected increase of 5.9 million barrels reported in the previous week. Inventory below this level may mean that crude oil prices have more room to rise.
On the other hand, an unexpected increase in inventory may make investors wary of weak purchases caused by potential recession risks. Remember, after China released pessimistic economic data in the second quarter and disappointing U.S. retail sales data, market participants have started to avoid risks.
At the same time, the possibility of a slowdown in global economic growth may mean that commodities such as crude oil will still face more downside, which may lead to another decline in crude oil prices. Earlier today, API reported a slight decrease of 797,000 barrels in inventory.
Technical Analysis
The decline of WTI crude oil after reaching US$77.00 last week seems to have completed the test of key downside support, which is around US$73.80.
Fibonacci expansion tools show that the next potential upward target is US$77.78, which is close to the previous high point, while the extension level of 50% Fibonacci retracement is US$79.03. Stronger bullish pressure may push crude oil prices to 61.8% Fibonacci level of US$80.40 or 76.4% Fibonacci level of US$81.82.
Momentum indicators are suggesting that more upside may be on the horizon. In this case, the 100 SMA has just crossed above the 200 SMA, suggesting that the path of least resistance is to the upside and that price is above both SMAs; as such, these SMAs may remain dynamically supportive below the breakout range resistance.
Stochastic has room to rise before reflecting overbought conditions or bull exhaustion, so the price may continue to follow. However, the RSI seems to be resuming its decline, so crude could face some bearish pressure, but the uptrend remains intact without breaking the previous low of US$72.69. It is recommended to buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 76.00
Target price: 81.82
Stop loss: 72.00
Deadline: 2023-08-02 23:55:00
Support: 75.38, 73.88, 72.74
Resistance: 77.17, 77.89, 79.18
