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Abstract: There are signs that the Palestinian-Israeli conflict will continue to be contained; At the same time, the conflict did not trigger a broader Middle East war. Moreover, the demand may be weak, leading to lower oil prices.

Fundamentals

WTI crude oil fell sharply on Monday, erasing all the gains after Israel's Hamas attack on October 7. The crude oil market seems to be coming to an end for a turbulent month.

In the Middle East, Israel's ground operations in Gaza have not yet triggered a wider regional conflict. Although Prime Minister Benjamin Netanyahu has ruled out the possibility of a ceasefire, the threat that may endanger the supply of crude oil seems to have not been resisted.

WTI and Brent crude oil prices are expected to fall as the risk premium caused by the conflict recedes and the concerns of a global economic slowdown are highlighted again. Although the possibility of reducing the supply of crude oil in the Middle East has not disappeared, (if this happens, oil prices will rebound to the annual peak, or even higher, depending on the degree of frustration. However, before that, the price is not expected to rise sharply.

Elsewhere, the U.S. Department of Energy said on Monday that the U.S. is seeking to purchase up to 3 million barrels of oil to replenish the country's strategic oil reserves, which will be delivered in January 2024. The U.S. Department of Energy said in a statement: "This is the second tender delivered in January 2024, because the goal of the U.S. Department of Energy is to buy oil in a favorable situation for taxpayers." Last month, the U.S. government indicated it wanted to buy 6 million barrels of crude oil for delivery in December and January next year.

Finally, WTI crude oil may get clues from the inventory data of API and the Department of Energy, and the decrease in inventory data may also indicate a decrease in official government data. This shows that the demand is still high, which may make the crude oil price rebound from the support area near the previous period.

On the other hand, the increase in inventory will indicate that the output is strong or consumption continues to slow down, which may lead to a decline in crude oil prices.

Please note that the safe-haven capital flow caused by recession concerns and the expectation of rising global interest rates may continue to support the safe-haven USD and drag down the crude oil price. After all, the prospect of higher borrowing costs may put pressure on business and consumer activities, thus limiting the demand for fuel and energy commodities.

Technical Analysis

WTI crude oil prices continue to fall in the downtrend channel in the short term because the price just failed to rebound from the resistance level and fell again.

The Fibonacci Extension tool shows the downside targets that the bears are aiming for. Crude oil prices have fallen below US$80.00, but there still seems to be enough bearish momentum to sustain its slide.

Next, the price may pause a bit with a period rally to US$79.55 and more rallies will test the downward pressure line at US$80.70 in search of a return to fair value. Thereafter, the pullback will continue.

Currently, the price of crude oil is in the US$79.20 range and the technical indicators look mixed. Stochastic is already in the oversold zone, indicating that bears are exhausted; therefore, a move higher means that the bulls are returning. However, the Relative Strength Index still has more room to fall before it indicates oversold conditions; therefore, the sell-off could continue until the oscillator picks up.

Overall, if support above US$78.54 holds, crude oil could rise again to the top of the downtrend channel near the SMAs (do not buy at the uptrend with the bullish outlook). However, the 100 SMA is lower than the 200 SMA suggesting that the downtrend is more likely to be extended than reversed. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 80.00

Target price: 76.96

Stop loss: 82.00

Deadline: 2023-11-21 23:55:00

Support: 80.00, 79.23, 77.62

Resistance: 82.00, 82.58, 82.79