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Abstract: Saudi Arabia and Russia, the world's two largest crude oil producers, have decided to expand crude oil production to support oil prices and increase income. The relative strength index of WTI crude oil is in the middle position, reflecting the range consolidation, but it also seems to be rising, indicating that bullish pressure may return.

Fundamentals

In addition to the existing production reduction measures agreed by OPEC+, Saudi Arabia will continue the voluntary production reduction of 1 million barrels per day until August and may further extend it.

Further production cuts will reduce Saudi Arabia's crude oil production to about 9 million barrels a day, the lowest level in several years, which will sacrifice its sales, but so far, the return from rising oil prices is very small. It is widely expected that oil prices will rise this year, but due to economic concerns brought about by rising interest rates, oil prices have actually fallen. It is expected that supply will still tighten in the second half of the year. Wall Street forecasters, including Goldman Sachs and Morgan Stanley, have given up the expectation that crude oil prices will return to US$100 a barrel.

Following Saudi Arabia, Russian Deputy Prime Minister Novak said that Russia promised to reduce crude oil exports by 500,000 barrels per day in August to keep the global market balanced. But he did not provide further details.

Today, Brent crude oil prices are close to US$76.00 a barrel after Saudi Arabia and Russia announced their continued production cuts on Monday, which provides more optimistic prospects for producers. In addition to the spot price rising again, futures prices also show bullish signs, indicating that the market expects supply to tighten.

The current balance of supply and demand shows that if two key OPEC+ oil producers implement these production reduction measures, there will be a large-scale supply shortage in the crude oil market in the coming months. However, the price of crude oil also encountered a major technical obstacle, that is, Brent crude oil futures failed to close above the 50-day SMA on Monday. It has been difficult for crude oil to break through this level since the price began to fluctuate within a range at the end of April.

WTI crude oil recently broke through the daily triangle resistance trend line since the end of May. Before breaking through the triangular resistance area, the circular resistance level was broken at US$70.00, which enhanced the bullish pressure of the commodity.

Given the strength of the strong support level of US$68.00 nearby, WTI crude oil is expected to further rise to the next resistance level of US$72.50 (the second top slightly adjusted since June).

At the same time, the fluctuation of crude oil may be intensified during the OPEC meeting, because investors may respond to any comments or changes in comments of member countries. After that, the minutes of the Federal Open Market Committee meeting may stimulate the directional trend, because policy deviation will affect the overall market sentiment.

Inventory data of API and EIA will also push up the volatility of crude oil prices, especially if the actual data unexpectedly decreases or increases. In particular, the reduction may mean that crude oil prices still have room to rise.

Subsequently, this Friday's non-farm payrolls data may also affect risk sentiment, because the employment data will affect the Fed's policy expectations.

Technical Analysis

Currently, WTI crude oil prices are still in a corrective mode ahead of a double bottom pattern with a neckline resistance level. If this support level remains intact, then WTI crude oil prices could resume their climb to a high of US$72.50 or higher.

The 100 SMA is above the 200 SMA, indicating that the path of least resistance is to the upside, or that support is more likely to hold rather than be broken. Stochastic is also rising, indicating bullish momentum, and the oscillator has room to rise before reaching the overbought zone.

Meanwhile, WTI crude oil prices appear to be finding support around the major psychological threshold of the 38.2% Fibonacci level at US$70.00, but a more substantial pullback could still reach the prior starting range of US$68.20. This is also the former resistance and dynamic support around the SMAs, and the bottom line for a bullish rebound would be US$66.90, below which level would indicate that the bears have taken over.

Overall, despite the bullish pressure on WTI crude oil prices, for the time being, prices are still wandering and trading in a range. It is recommended to buy low and sell high with the range trading.

Trading Recommendations

Trading direction: Short

Entry price: 72.30

Target price: 68.20

Stop loss: 74.50

Deadline: 2023-07-19 23:55:00

Support: 70.40, 69.57, 69.02

Resistance: 71.80, 72.48, 72.67