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Summary: Crude oil prices continued to slide on Thursday as demand appeared to weaken due to higher-than-expected US crude oil inventory increases. Despite escalating tensions in the Middle East, oil prices are still on the decline as investors prepare for a widely anticipated ground operation in Gaza.

Fundamentals

On Thursday, the Israeli military briefly attacked northern Gaza, reportedly in preparation for a full-scale ground invasion. This marked the third attack since the start of the conflict, but the heightened tensions are still not enough to support crude oil prices, as investors may have already factored in all their expectations for military conflict or ground operations.

With the shifting winds of war, crude oil fundamentals are taking a backseat. Macroeconomic headwinds continue to deteriorate, putting increasing pressure on the crude oil market. The market's return from war premiums to discounts is causing recurring volatility, which implies that any rebound built on geopolitical risk premiums is on shaky ground, quite literally in the desert. Prices could collapse at any moment.

Apart from the Middle East, US inventory increases exceeded expectations. Data from the Energy Information Administration (EIA) showed that US national inventories increased by 1.371 million barrels last week, surpassing the previous week's decline of 4.491 million barrels. This also exceeded the market's generally expected increase of 239,000 barrels. Falling profit margins for producing fuels like gasoline before the arrival of winter also led to a drop in prices in the global physical oil market.

Meanwhile, despite a strong GDP growth rate of 4.9% in the third quarter, investors are concerned that the fourth quarter may not see a repeat of such performance. Economic slowdown and seasonal reductions in crude oil demand further weigh on crude oil and natural gas prices.

Technical Analysis

WTI crude oil has been steadily retracing since touching the mid-range of $93.93 to $80.62 on October 20th, with subsequent rebounds. Despite successfully halting the recent downward momentum and recovering some losses, the 20-day SMA has consistently acted as a strong upper limit for buying interest, leading to consolidation and retracement in the price over the past two trading days. Meanwhile, the momentum indicator was rejected before entering the bullish zone.

If the bulls manage to breach the 20-day SMA, there will be no significant resistance ahead of the downward-sloping trendline (as shown in the chart). Breaking through this barrier, the price may test the mid-range level of $89.58. A breakthrough in this area could open the door to the 2023 high of $93.93, a 13-month high.

However, it is my belief that it may not surpass the mid-range of $89.58. With the progression of the time cycle, the bulls may find themselves halted below $87.00. Subsequently, the price could reverse lower, breaking through the recent support level of $82.10. If this baseline is breached, WTI crude oil may challenge the October low of $80.20 before possibly reaching even lower levels, with the June resistance level of $75.00 potentially providing downside protection.

In summary, WTI crude oil has successfully paused its recent correction, but its recovery seems to falter near the 20-day SMA. Nevertheless, as long as the price holds within the recent bottom range of $82.60 and lingers near the 20-day SMA, the neutral bullish technical outlook for crude oil prices remains intact. In terms of trading, buying the dips is the recommended approach.

Trading Recommendations

Trading Direction: Long

Entry Price: 83.30

Target Price: 87.50

Stop Loss: 80.50

Valid Until: 2023-11-10 23:55:00

Support: 82.50, 81.43, 80.64

Resistance: 84.41, 85.99, 87.88