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Fundamentals

In Wednesday's (August 3rd) Asian session, WTI crude oil oscillated downward and is currently trading near $79.3/barrel. Yesterday, the U.S. crude oil inventories saw a historic one-week decline, while oil prices still fell sharply. The market interpreted it as investors looking for safe haven. This may be an unexpected decline for many investors, but instead, it is an expected result as we have emphasized many times, that the oil price successfully reached the first expected target area under the speculation of demand expectations and supply tightening, and finally surged up to the massive resistance area. However, if a smooth retracement is missing, the oil price is difficult to grow further, for which investors should keep a bullish view without going long, and aggressive investors can go short. In addition, the current oil price retraces to 78.5 as expected, successfully cashed in the retracement by 3-4 dollars. Thus, the oil price will maintain the bullish trend, and the retracement is just for a better rise, while investors can wait for an opportunity to trade again.

Data: U.S. crude oil stocks plummeted 17 million barrels last week, the largest drop in U.S. crude oil inventories since 1982, with the reduction in inventories attributed to an increase in refining and strong crude oil exports. Moreover, the total refined oil supply fell by 1.3 million barrels to 20 million bpd. At the same time, the four-week average of Russian crude oil shipments declined to 2.98 million bpd, the lowest level since January 8th and 900,000 bpd lower than the mid-May peak.

Today's focus: U.S. ISM Services PMI, Factory Orders, Weekly Initial Jobless Claims, U.S. Nonfarm Productivity QoQ, and Unit Labor Costs data.

Technical Analysis

Daily chart: Yesterday's decline in crude oil has previously been expected. It was emphasized that the appreciation in the U.S. oil has deviated, and it will ultimately plunge at the end. Furthermore, the overnight pattern completely ignored the positive impact of the EIA data, and directly started the retracement, which verified the previous risks of the sentimental rise, and low profit/loss ratio. Yesterday, the bearish candle crossed below the 5-day SMA, and WTI will maintain the weak pattern. Currently, it is hovering near the 10-day SMA. Based on the strength of yesterday's depreciation, WTI will not be stopped by the 10-day SMA, and it may further move to the area between the 10-day SMA and the 20-day SMA. For the lower area, investors should pay attention to the support in the area between 77.5 to 78.5. Today, the 5-day SMA (80.5) becomes a short-term key resistance position, while WTI failed to recover it yesterday. Even if there is a rebound today, the momentum could be insufficient. Nonetheless, the rising trend of oil prices is still outstanding, and this retracement will accumulate momentum, which will be helpful for later appreciation.

Trading recommendations: Aggressive investors should go short with small positions near 80.5 and set the stop-loss at 81. Besides, try to move the stop-loss to breakeven when WTI reaches 79, and hold the remaining positions to see the situation at 78. If the WTI retraces to 78, investors could go long with small positions by setting the stop-loss at 77.5. To take profits, investors could look at 79.5 initially, and move further to 80.5 after setting breakeven orders.

Trading Recommendations

Trading direction: Long

Entry price: 78.00

Target price: 80.500

Stop loss: 77.500

Support: 78.500/77.500

Resistance: 80.500/82.500