{x} | Trading.live

Abstract: The signal of OPEC's production reduction and the deterioration of global demand outlook looms in a series of light intraday trading, and oil prices fluctuated for the second consecutive day.

Fundamentals

The market is waiting for the next clue of crude oil demand prospect, and WTI crude oil is stable above US$80 per barrel. WTI crude oil prices rose by 1.5% in the past three days, the longest continuous increase since late July, and also climbed to the level close to the beginning of the year.

The market expects that the Fed's monetary tightening action is not over yet, which should limit demand. Previously, crude oil prices rose in July due to supply restrictions in Saudi Arabia and Russia, but there were some small monthly declines in August.

At the same time, OPEC's deep production cuts and strong refined oil inventories will help ensure a tight market balance in the second half of the year and support prices. However, in the context of rising borrowing costs, concerns about the macro-economy are increasing, which limits the upward space of oil prices in the near future.

Nevertheless, with the slowdown of demand, the balance between the supply and demand of crude oil will be slightly surplus in the first half of 2024. The increase of spare capacity in OPEC will put pressure on forward futures. Its idle production capacity is about 5 million barrels per day, the highest level in 20 years except for the COVID-19 pandemic period. Cutting production is good news in the short term, but it will further depress the forward oil price and eventually limit the increase in oil prices in recent months.

Crude oil prices may get clues from API and EIA inventory data released later this week, although U.S. economic data may steal the limelight.

The preliminary data of GDP in the second quarter of the U.S. may contain some corrections that may affect the overall market sentiment because this data with market expectations will show that it is more likely to raise interest rates in September. Subsequently, the core personal consumption expenditure price index or the main inflation indicators of the Fed may also affect the Fed's tightening expectations. Strong data may increase the possibility of raising interest rates.

In the coming Friday, the market's attention will focus on the 7 non-farm payrolls data in the U.S., and investors expect that the "summer effect" may slow down recruitment again in that month.

Technical Analysis

WTI crude oil recently fell below the neckline of the head-shoulder pattern in the 4H time frame, confirming that the downward trend with the same height as this pattern is taking shape.

The price has since begun to rebound, retesting the breakout support area, which is now holding as resistance near the 61.8% Fibonacci retracement and the threshold of US$80.20. This level is also the top of the downward channel and if this level is enough to curb the gains at the 4H close. Crude oil could fall back to fluctuating lows of $US77.52 or lower.

However, the 100 SMA is still above the 200 SMA, suggesting that the path of least resistance in the short term is still to the upside or that a resumption of the uptrend is possible. However, the gap between the indicators is narrowing, hinting at the possibility of a bearish crossover after the premium.

Meanwhile, the stochastic indicator has turned downward, suggesting that selling pressure will gradually return. However, the oscillator has a lot of room to fall before reflecting the emergence of exhaustion of bears; therefore, crude oil prices are likely to follow suit.

Although the Relative Strength Index has room to rise before reaching the overbought zone, the oscillator appears to have peaked and is poised to fall. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 81.10

Target price: 75.89

Stop loss: 82.90

Deadline: 2023-09-12 23:55:00

Support: 79.45, 78.51, 77.52

Resistance: 80.69, 81.16, 81.66