Chapter 30  WTI: Retracement but Not Reversal, Oil Price Remains Growing (7.18)


During Tuesday's (July 18th) Asian session, WTI crude oil oscillated narrowly, and it is currently trading at 74.2 USD/bbl. Yesterday, oil prices shocked downward due to market concerns about the weak economic data of China. Data released by China's National Bureau of Statistics (NBS) showed that China's GDP increased by 5.5% YoY in the first half of the year, and grew by 6.3% in the second quarter, but the previous forecast was for a growth of 7.3%. In addition, Libya resumed production of two of the three oilfields that were shut down last week, and traders took profits to settle the trade, which also weighed on the oil price.

News: Saudi Arabia's crude exports slipped to 6.93 million bpd in May, the lowest in 19 months, JODI data showed. Moreover, the size of Russia's oil exports from its western ports will fall by around 100,000-200,000 bpd from July levels, starting next month.

In general, as was emphasized last week, oil prices will first surge high to 76.8 and then get suppressed and fall back to the support level at 74.5, which is realized according to the pattern. Recently, crude oil has shown simultaneous growth in both price and volume, the daily slope got steepened, and the upward momentum is further accelerated. Thus, this retracement is the normal demand. However, it is a retracement, not a reversal, and WTI is still in the short-term strong pattern with strong ascending momentum. Besides, the strength of the oil price is certainly related to the USD's plunge in recent times. Despite the U.S. CPI and PPI plummeting further, the labor market remains strong, the U.S. banking sector is eased, and the U.S. and China's diplomatic relations change. All these and other factors support the U.S. economy for a "soft landing," which can even be a potential force to turn the global economy better in the second semester. However, the demand/supply relationships of oil prices may have been changing, with the supply side getting developed, while the demand side is still struggling. Additionally, China's economy is getting stable at the bottom, and the "soft landing" of the U.S. economy is doubtful. Therefore, the oil price is still probably in an oscillating pattern, while the pivot is lifted, and the oil price will move within the range of 73-83.

Technical Analysis

Daily chart: U.S. oil continued to depreciate yesterday and retraced to the 10-day SMA near 84. Regarding the European session, due to the impact of the news, the U.S. oil trend exhibited a tricky pattern during the European session, surging to test the resistance near 76 and then quickly returning to 74 and oscillating, closing the daily chart negatively. According to the current structure, the U.S. oil consolidated to the 10-day SMA is sufficient, but it plunged for two consecutive days significantly, which could result in a further depreciation on WTI. So, the U.S. oil is expected to descend again, or it may rebound after testing the lower levels. Accordingly, investors should focus on the 10-day SMA (74.2) today. If it is effectively broken, the previous massive trading area in 72.7-73 should be watched, and the strong resistance will be the 20-day SMA (72), which is worth trading long positions in the middle term.

Today's trading plan: It is better to buy lows and sell highs with small positions. Aggressive traders can try to go long at 74.2 with a small stop-loss, and set the stop-loss at 73.6. To take profit, the first target will be 75.2, where investors can move the stop-loss to breakeven. The second target will be 77.3. Meanwhile, WTI is suppressed at 75.0, where aggressive traders can also try to go short in the near term and set the stop-loss above 75.3, and take profits completely at 74.0 below.

WTI: Retracement but Not Reversal, Oil Price Remains Growing (7.18)-Pic no.1

Trading Recommendations

Trading direction: Long

Entry price: 73.000

Target price: 75.200

Stop loss: 72.500

Support: 74.200/73.000

Resistance: 75.200/77.300

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