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Summary: Due to OPEC+'s decision and uncertainty in global energy demand, WTI crude oil prices continued to decline on Monday, breaking below the psychological level of $73.00 during the European session. However, there was a rapid corrective upward movement in prices thereafter.

Fundamentals

During the Asian and European sessions on Monday, WTI crude oil prices fluctuated within a $1.00 range. The continued softness in WTI crude prices was attributed to the uncertainty surrounding OPEC+'s decision and the global energy demand growth.

OPEC+ recently announced a further reduction of 1 million barrels per day in oil production quotas. However, skepticism persists in the market regarding the effectiveness of this production cap, especially as it faces reluctance from several smaller member countries.

On one hand, the reduction, touted as 2.2 million barrels per day, is largely a continuation of this year's production cuts, essentially a case of "old wine in a new bottle," with the new reduction amounting to only around 900,000 barrels per day, falling short of the market's earlier expectation of 1 million barrels per day.

More concerning is the apparent weakness in the voluntary nature of OPEC+'s production cuts rather than a collective reduction, reflecting internal divisions. Traders are concerned that the voluntary nature of the cuts raises questions about whether member countries will follow through and implement the reductions.

Internal disagreements within OPEC+ pose challenges for further intensifying production cuts in the future. The organization is facing pressure from record production levels in external countries such as the US. If all member countries strictly adhere to voluntary production cuts, the inventory reduction in the first quarter of 2024 is expected to exceed 700,000 barrels per day, though the likelihood is low. Considering the increase in production from countries like Iran and the difficulty some nations may face in fulfilling their reduction commitments, it is expected that the first quarter of next year will likely see a state of basic supply-demand balance.

Finally, WTI crude oil will gather insights from inventory data released by the American Petroleum Institute (API) and the Energy Information Administration (EIA) this week. An increase in inventories may highlight weak demand conditions, potentially leading to further declines in oil prices. On the other hand, a decrease in inventories indicates increased consumption, alleviating concerns about an economic downturn and causing oil prices to rise.

However, the primary driver of the market this week is likely to be the release of US non-farm employment data, as an increase in hiring may give investors hope for further Fed rate hikes. Conversely, this could translate into a rise in the US dollar and an increase in risk aversion, potentially boosting the flow of safe-haven funds.

On the other hand, weak employment data may increase expectations of the Fed implementing loose policies next year, potentially implying upward momentum for crude oil prices.

Technical Analysis

In the short term, WTI crude oil has formed lower lows and slightly lower highs within a wedge pattern, but the price has already broken below the support level at $73.35. This could make the upcoming downward rebound, expected to be of similar magnitude to the pattern, more elusive.

The Fibonacci extension tool reveals additional downside targets that bears might focus on. The price has currently fallen below the 61.8% extension level around the psychological level of $73.00, and if it further declines, the target may be $71.88.

Technical indicators appear mixed. The 100 SMA below the 200 SMA indicates a path of least resistance to the downside, and the crude oil trading price is currently below both indicators; therefore, these indicators may continue to act as dynamic resistance levels.

The stochastic oscillator pointing downwards indicates the presence of selling pressure, but the oscillating indicator has also entered oversold territory, suggesting that bears may be exhausted. The relative strength index (RSI) is also in oversold territory, implying that a rally would mean a return of bullish momentum.

Finally, with the previous 4-hour closing price forming a bullish candle, it appears that the current downward momentum has been corrected. As long as the current price does not break below the recent intraday low again, it is expected that bulls will take control in the later period. In terms of trading strategy, buying the dips is recommended, with a focus on not breaking below the low point during the European session.

Trading Recommendations

Trading Direction: Long

Entry Price: 73.30

Target Price: 82.77

Stop Loss: 71.10

Valid Until: 2023-12-18 23:55:00

Support: 73.00, 72.37, 71.18

Resistance: 73.84, 75.07, 76.79