Chapter 36  WTI: Inventories Continue to Be Cut, but Not As Expected(7.20)


During the Asian session on Thursday (July 20), WTI crude oil fluctuated in a narrow range, currently trading around $75.3 / barrel, which was mainly due to the decline in US crude inventories weaker than expected.

During the night session, oil prices fell from their highs and finally closed with a long upper shadow after the EIA weekly report released the decline in crude oil commercial inventories, which was weaker than expected. In addition, the dollar index rebounded, and the strengthening of the dollar made crude oil more expensive for investors holding other currencies, which limited oil prices to the upside as well. However, it is worth noticing that the US strategic crude oil reserves have begun to recover, which means that the US has started to re-enter the stage of replenishing the strategic crude oil reserves.

Data: The annualized number of new housing starts in the US in June was 1.434 million, compared with the 1.48 million expected, from 1.631 million in the previous month. The total number of construction permits was 1.44 million, compared with 1.49 million expected and 1.491 million in the previous month. Eurozone June CPI final rose 5.5% YoY and 0.3% MoM. The final core CPI rose 6.8% YoY and 0.4% QoQ. UK CPI rose 7.9% YoY in June, up 8.2% expected and 8.7% in the previous month. The June core CPI rose 6.9% YoY, compared with 7.1% expected and 7.1% in the previous month.

News: Russian seaborne crude shipments fell to a six-month low, which seemed to indicate that Russia has finally fulfilled its promise to cut supplies to international markets.

Inventories: EIA crude inventories fell by 708,000 barrels in the week to July 14, compared with an expected decrease of 2.44 million barrels and 5.946 million barrels in the previous month. Cushing, Oklahoma, crude inventories fell by 2.891 million barrels, compared with a decrease of 1.605 million barrels in the previous month. Strategic Petroleum Reserve (SPR) inventories rose 1,000 barrels to 346.8 million barrels. Gasoline inventories fell by 1.066 million barrels, compared with an expected decrease of 1.577 million barrels and a decrease of 4,000 barrels in the previous month.

Overall: The second half of the year will be a time when China drives the economy, with oil demand gradually picking up in summer and peak consumption seasons in September and October. At the same time, the CPI in Europe and the US has gradually moderated, reducing restrictions on the oil market. On the supply side, for one thing, a series of events have supported expectations of tight supply in the future, including the extension of production cuts by Saudi Arabia, supply disruptions in Libya and Nigeria, and the fulfillment of Russia's production reduction commitments. Currently, as it has entered the implementation period of production cuts in July, the market's sentiment will gradually warm. Under the trend of tightening supply, investors can maintain a moderately optimistic attitude toward oil prices.

Technical Analysis

Trading at the daily timeframe, US oil rebounded as expected after a brief period of oscillation yesterday and stopped above the 77 line. Affected by the negative EIA data in the evening, US oil showed a wave of correction, retracing to around 75 support as expected, with the daily closing a black body with a long upper shadow. From the perspective of the daily structure, if yesterday was higher and closed in the sun, then the upward sentiment brought by the long white candlestick on Tuesday would continue to have a certain impact. However, the price rushed higher and then retreated yesterday, which was to test the resistance at MA200. Such a trend has also occurred in mid-April, which will inevitably increase the expectation of a short-term correction in the market. At present, the support of the MA5 and MA10 at 75 is tested. Since investors in US crude oil futures will exchange futures contracts tonight, it is not surprising if the price falls below 75, which is a better opportunity for bulls instead and is also beneficial for going long in the later stage.

It is recommended that investors pay attention to some retracement adjustment of US oil within the day, and the support of MA10 around 74.9 below. If the market retraces to this area, aggressive traders can consider going long with the stop loss at the 74.6 line. The first target is at 75.9, where you can reduce your positions and move the stop loss to break even. The remaining position can be utilized for swing trading, and the second target is at 78. Investors should try to avoid going short in the short term during the day, but if the price rises to the 76.8 line, you can also trade with small positions. The stop loss will be at 77.3 and the threshold for profit-taking is uniformly at 75.8.

WTI: Inventories Continue to Be Cut, but Not As Expected(7.20)-Pic no.1

Trading Recommendations

Trading Direction: Long

Entry Price: 74.900

Target Price: 76.000

Stop Loss: 74.600

Support: 74.900/73.700

Resistance: 75.800/77.300

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