Chapter 12 09/27 WTI: It Will Keep Rising after a "V-shaped" Price Reversal
Abstract: As the impact of the rapid tightening of supply exceeds the impact of the weakening of risk appetite in the broader market, oil prices have dropped back to the previous week, and the short-term target is expected to reach above US$93.50.
Fundamentals
It recovered the previous week's decline in just one day. WTI crude oil closed at around US$91.00 per barrel on Tuesday, reversing the losses caused by investors' worries about the possibility of raising interest rates for a long time. At the same time, traders continue to see signs of supply shortage, because the recent premium of U.S. oil price per barrel hovers at the highest level in more than a year, indicating that there is a shortage in the market.
According to the API report, crude oil inventories unexpectedly increased by about 1.6 million barrels last week, but Cushing crude oil inventories continued to decline, with a decrease of 828,000 barrels. Crude oil seems to be well supported. There may be more adjustment, but after such a strong rebound in summer, there is no obvious sign that the mood has turned bearish.
The rise in oil prices has also attracted more supply, Iran's crude oil supply may come out of the shadows, and oil from Suriname and Guyana will continue to enter the market.
Market observation: Yesterday, WTI crude oil rebounded in a V-shape, which exceeded the impact of the weakening of risk appetite in the broader market, driving crude oil prices to continue to rise today, which swept away the macro suppression brought by the strong USD this week and is expected to continue to rise in the later period.
According to the data released by EIA last week, Cushing crude oil inventory has maintained a downward trend for more than ten weeks. As the delivery place of WTI crude oil futures, Cushing's current inventory has dropped to less than 23 million barrels, the lowest in the same period of five years. In the past, when the inventory was close to or below 20 million barrels, it usually caused the market to worry about crowding.
If EIA data released later today continue to reduce crude oil inventories in Cushing, oil prices may remain strong.
In addition, the current strong refining demand and increasing crude oil exports in the U.S. may still constitute obvious support for oil prices. If there is no U.S. government shutdown crisis at the end of the month or the economic data in early October does not exceed expectations, the previous strong posture will probably continue.
Finally, investors need to focus on the guidance on the market from OPEC+ Monitoring Committee on October 4.
Trading Direction
WTI Crude Oil prices are trading in a V-shaped reversal pattern on Tuesday, which is in line with our expectations, and the current trend structure of WTI Crude Oil looks to have reversed the impact of risk appetite (rising USD). Prices have now broken through several key resistances and are expected to continue to move higher in the later trading.
If this happens, WTI crude oil price may rise to the same height as the increase above the triangle, and finally reach or approach US$93.50. At the same time, technical indicators still reflect the persistence of bullish momentum.
The fact that the 100 SMA is above the 200 SMA suggests that the path of least resistance is to the upside, or that support is more likely to hold rather than be broken. In addition, the gap between the indicators seems strong enough; therefore, a bearish crossover does not seem imminent. Also, crude oil is trading above both SMAs; therefore, these SMAs may hold as dynamic support in the event of a price pullback.
Finally, the upside seems to be unimpeded after the price broke above US$91.00, implying that more bulls are ready to take over and resume the upward momentum. The Relative Strength Index, however, has more room to rise before it reaches the overbought zone, so buying pressure will persist until it does.
Overall, after crude oil prices bottomed out and formed a V-shaped rebound, the market is expected to remain in a buying mode, and even if there is a pullback, there will not be a sharp decline in the reversal pattern. In our view, the trading direction continues to tilt towards a bullish trend. It is recommended to buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 91.00
Target price: 93.50
Stop loss: 89.50
Deadline: 2023-10-11 23:55:00
Support: 90.96, 90.34, 89.79
Resistance: 91.45, 92.26, 93.43
