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Summary: ]After pushing WTI crude oil prices to a near one-year high of $92.26 on Tuesday, the market witnessed a sharp retreat, briefly ending the slow upward trend of the past three months. Nevertheless, the bulls are not giving up just yet and may aim for new highs after a short pause.

Fundamentals

Following a 1.00% decline on Wednesday, WTI crude oil continued to slide during the European session on Thursday, posting an overall 0.75% drop for the day. The critical factor contributing to this significant retracement has been the prolonged overbought conditions on the technical front, indicating that the surge to nearly one-year highs may have been somewhat excessive.

Subsequently, oil prices faced another downturn as Fed Chairman's remarks during the post-FOMC meeting press conference hinted at the possibility of another interest rate hike this year and an extended period of higher rates. This marks the third consecutive day of decline for the benchmark crude oils following their recent substantial gains.

The current market sentiment questions the sustainability of the upward momentum and whether profit-taking might limit further gains.

We believe that the Fed's signal of prolonging higher interest rates has heightened concerns among oil traders about market consolidation. With the Fed hinting at the possibility of another 25 basis point rate hike before the end of the year, risk assets remain under pressure, as the prospect of higher borrowing costs in the US could put pressure on commodity consumption.

While this may raise some concerns about demand in 2024, we believe that the short-term outlook suggests that supply will continue to remain tight.

Furthermore, Wednesday's EIA report revealed a more substantial decline in inventories than expected, yet WTI crude oil prices remain subdued. The market had initially anticipated a production decrease of 1.3 million barrels, but the actual report showed a reduction of 2.1 million barrels, indicating strengthening demand conditions. This could potentially drive oil prices higher once again in the short term.

Technical Analysis

With crude oil prices forming a head and shoulders pattern in the hourly chart (with the right shoulder higher than the left), WTI crude oil appears poised to reverse its downtrend. The price is currently testing several key support levels, and breaking below them could confirm a bearish trend.

In such a scenario, WTI crude oil prices could potentially fall to the same magnitude as the initial decline, ultimately reaching $87.24. However, technical indicators still reflect the presence of bullish momentum.

The 100-day SMA is above the 200-day SMA, indicating that the path of least resistance is to the upside, with support more likely to hold than be breached. Meanwhile, the divergence between the indicators appears strong enough, suggesting that a bearish crossover may not be imminent. Additionally, the crude oil trading price is below both moving averages, so these moving averages may continue to act as dynamic resistance levels.

Lastly, the stochastic oscillator has entered oversold territory, indicating that the bears are exhausted. Rising prices imply that the bulls are ready to take control and resume the upward momentum. The Relative Strength Index (RSI) has more room to fall before reaching oversold territory, so selling pressure may persist until it enters oversold territory.

Taking an overall view, market signals are somewhat mixed; however, even considering additional risk factors, we believe the direction should lean toward a bullish trend. In terms of trading strategy, buying the dips is recommended as the primary strategy.

Trading Recommendations

Trading Direction: Long

Entry Price: 88.40

Target Price: 93.57

Stop Loss: 87.20

Valid Until: 2023-10-05 23:55:00

Support: 88.61, 88.22, 87.72

Resistance: 90.50, 91.26, 92.26