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Summary: International oil prices remain in a selling mode as the market's focus on the Israeli-Palestinian conflict appears to be fading. Meanwhile, the supply and demand dynamics are in a relatively loose state, and despite several Fed officials expressing opposition to interest rate cuts, crude oil prices have shown minimal changes.

Fundamentals

Brent crude oil dropped below $80.00 per barrel for the first time in over three months yesterday as concerns about weakening energy demand overshadow worries of potential supply disruptions due to the Israeli-Palestinian conflict. Following the October 7th attack by Hamas on Israel, oil prices briefly surged above $90.00. However, attention has now shifted to the deteriorating global economy and weak crude oil fundamentals, as crude oil supplies in the Middle East have remained unaffected by the conflict. Meanwhile, energy demand in both the US and Europe is not optimistic.

The decline in international oil prices is primarily attributed to the underwhelming short-term economic recovery in Europe and the US. For example, the US unemployment rate exceeded expectations over the past two months, and the rate of contraction in the New Orders Index has accelerated. Additionally, there are no signs of supply-side tightening as of now. In the long term, the supply and demand dynamics remain relatively loose, but there is a possibility of supply reductions in the short term.

Recent statements by Fed officials have done little to deter market expectations of interest rate cuts next year. As oil prices continue to decline, inflation expectations are unsurprisingly decreasing as well, further supporting the anticipation of rate cuts. Nonetheless, despite multiple Fed officials expressing opposition to interest rate cuts, crude oil futures have seen minimal changes, with oil prices essentially retracing all the gains made since the Israeli-Palestinian conflict. Moreover, the subdued demand for crude oil in some countries may continue to exert downward pressure on oil prices, making the declining oil prices a renewed focus.

Risk sentiment could play a significant role in the future direction of commodities like crude oil, as the likelihood of higher borrowing costs by major central banks could limit upward momentum. After all, elevated interest rates may stress business and consumer activities, reducing demand for fuel and energy commodities.

Earlier, weak inflation data from China reduced the possibility of a tightening policy by the People's Bank of China, leading to a slight increase in risk appetite.

Technical Analysis

WTI crude oil continued its downward trend on Thursday as it posted lower highs and remained connected to the descending trendline in place since October. Currently, crude oil has rebounded from a support level at $74.67 and may retrace to the second resistance level at $77.50.

The Fibonacci retracement tool reveals other levels that bearish traders may be watching. Specifically, the 61.8% Fibonacci level coincides with the trendline around $80.30. A minor adjustment could lead to bearish traders targeting the 50% Fibonacci retracement level or the 38.2% level. Bullish traders may test the first resistance at $76.15.

The 100 SMA below the 200 SMA suggests the path of least resistance is to the downside, indicating a higher likelihood of the downward trend continuing rather than reversing. However, the stochastic oscillator has been showing oversold conditions for a considerable period, which means that bullish traders could take control at any time.

A bullish breakout of the trendline and dynamic resistance from moving averages would indicate a potential reversal in the upward trend. The RSI has also risen from oversold territory and still has significant room for further upside before reflecting exhaustion among the bulls. Caution is advised for those looking to continue short positions.

Trading Recommendations

Trading Direction: Short

Entry Price: 76.00

Target Price: 73.48

Stop Loss: 78.50

Valid Until: 2023-11-23 23:55:00

Support: 76.32, 74.48, 73.74

Resistance: 77.49, 78.23, 79.18