Chapter 19  WTI: In the Game of Supply and Demand, Do not Be too Optimistic Before Breaking the Resistance(7.11)


During the Asian session on Tuesday (July 11), WTI crude oil fluctuated in a narrow range and is currently trading around $73.6/barrel. Oil prices rose back down yesterday, with the peak as high as above $74 and the bottom as low as 72.6, which is mainly due to weak economic data from China and heightened wait-and-see sentiment among investors. According to China's National Bureau of Statistics, China's Industrial Producer Price Index (PPI) widened to 5.4% YoY in June. Some experts said that China's YoY decline in PPI may have bottomed out. Meanwhile, Fed officials' statements overnight were mixed, but overall dovish. Subsequently, the US dollar weakened and oil prices began to rise slightly to 73.5 in the Asian market during the day. Currently, the game between supply and demand is gradually intense, with the bottom of the demand side has been basically explored and the bottom of the supply side has also been clear. Therefore, the result depends on the performance of the data. As inflation data in the US will be released this week, most market investors keep cautious about it. Therefore, oil prices will continue to oscillate.

Data: Kazakhstan produced 225,900 mt of crude oil on July 9, down from about 250,000 mt per day before the power outage in the western part of the country on July 3, according to data released by the Kazakh Energy Ministry.

News: The US government intends to purchase another 6 million barrels of crude oil in October and November to replenish the Strategic Petroleum Reserve. In total, the US government expects to buy about 12 million barrels of crude oil this year.

Investors can pay attention to the upcoming US CPI and PPI data in the middle of this week as well as oil reports of the IEA, OPEC, and EIA, which will provide more indication of the future direction of oil prices.

Technical Analysis

Trading at the daily timeframe, WTI prices continued to maintain the recent strong oscillation at high yesterday, testing the high resistance above 74, but then retraced to around 73 in the middle of the night. Finally, the daily chart closed with a negative star line with upper and lower shadows. This rally has continued since the end of June, and the price has risen from 67 to 74, completing an upward cycle. Oil prices will maintain a bullish trend, and investors can keep taking long positions at lows until the cycle encounters strong resistance. However, short-term consecutive gains have drained the bulls' momentum. In addition, as the upper edge of the oscillating range is facing the upper resistance, prices also allow to correct moderately in the short term, but the space will not be large. The reason lies in that the daily level US oil trend has gradually risen to a long trend, and the fundamentals are constantly supported by positive news. Therefore, the mid-line level of US oil still retains bullish expectations, if oil prices can break through the 74.5 level, which is also the upper edge of the previous fluctuation area. However, perhaps oil prices will retrace after rising to this level and hit the resistance at 80 again.

Aggressive traders can observe the retracement adjustment first, and consider going long after the retracement gains support. The low support is around Monday's low of 72.5, and investors can wait for the price to reconfirm before going long. The upper side should still focus on the high at 74.5, with the high resistance point at the same level. If the rise is weak, investors can try to go short and observe the level below at 72.5.

WTI: In the Game of Supply and Demand, Do not Be too Optimistic Before Breaking the Resistance(7.11)-Pic no.1

Trading Recommendations

Trading Direction: Long

Entry Price: 72.500

Target Price: 74.500

Stop Loss: 71.500

Support: 72.500/70.500

Resistance: 74.500/76.000

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