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Abstract: WTI crude oil briefly climbed to a three-month high above US$79.00 on Tuesday and then stabilized. In the previous trading day, WTI crude oil and Brent crude oil both closed above the 200-day SMA, which was the first time in nearly a year. If it continues, it may help to stimulate more buying, because it represents a healthier technical background.

Fundamentals

In the initial signs of global market tightening, WTI crude oil prices rose for the fourth consecutive week. It climbed to a three-month high of US$79.00 on Tuesday and then stabilized.

The renewed strength of the market is also reflected in the critical time spread of crude oil.

After briefly falling into the opposite bearish futures premium structure last week, the spot premium gap between the two recent WTI crude oil contracts was 35 cents per barrel, the highest level since November.

In addition, oil prices rose sharply this month after the Organization of Petroleum Exporting Countries and Russia cut supplies to help consume global stocks. This offsets the drag of the Federal Reserve's monetary tightening policy, which is expected to continue to raise interest rates this week. But if the Fed hints that this may be the last tightening measure this year, the USD may fall across the board and boost risky assets in the process.

After all, the prospect of keeping interest rates unchanged may mean an upward trend in business and consumer activities, thus increasing the demand for fuel and energy commodities. On the other hand, with the resurgence of recession fears, the possibility of more interest rate hikes may push safe-haven capital flows to push up the USD.

At the same time, the tightening of fundamentals is pushing up the oil price, but the market still has concerns about demand, and China has always been the focus of attention. Among the largest crude oil importers in the world, the China government indicated that it would increase its support for the real estate industry and promised to stimulate consumption, but they avoided major fiscal or monetary easing policies.

Later this week, API and EIA crude oil inventory reports may also affect the price trend, because another inventory reduction may mean an increase in crude oil prices.

Technical Analysis

WTI crude oil has shown a steep upward trend in recent days, but with the resistance of US$79.00 in the early stage of the crude oil price test, its upward trend may show some correction.

Meanwhile, WTI Crude Oil prices have seen resistance for the bulls around the threshold of US$80.00 since late 2022; for now, that level could curb gains once again. After all, technical indicators suggest that bearish pressure could return.

The 100 SMA is below the 200 SMA, indicating that the path of least resistance is to the downside, or that a long-term downtrend is likely to gain traction. However, crude oil has traded above both SMAs, which is an early sign of a change in trend. In addition, the gap between the indicators has narrowed, suggesting that a potential bullish crossover is also likely to continue.

However, the stochastic indicator has been showing overbought conditions for some time now, so a move lower would mean that selling pressure is intensifying. The RSI still has room to rise, but it is also approaching the overbought zone; therefore, a drop could trigger strong buying. It is recommended to follow the trend and buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 79.00

Target price: 82.72

Stop loss: 73.70

Deadline: 2023-08-08 23:55:00

Support: 77.10, 76.43, 74.53

Resistance: 80.66, 81.49, 82.72