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Fundamentals

During the Asian session on Tuesday (June 6th), WTI crude oil fell unilaterally, which is currently trading around $70.70 per barrel. The crude oil gap was higher opening yesterday but the follow-up was weak. The bulls gradually cashed in profits and left the market, and oil prices continued to fall. After digesting the news of additional voluntary production cuts in Saudi Arabia, the market realized that the demand outlook remained weak. Poor overnight U.S. services PMI data dragged down oil prices. Coupled with the US energy secretary's statement of concern about oil prices and cooperation with oil producers and consumers to ensure lower oil prices, oil prices fell sharply today, basically giving up half of the current round of gains, falling as low as around $70.5 per barrel, and once again near the key support level of 70.6.

Data: The US Purchasing Managers' Index (PMI) for ISM Services came in at 50.3 in May, below market expectations of 52.2 and the previous reading of 51.9. This further increased the market's hope that the Fed chose to pause interest rate hikes at the FOMC meeting held on the 15th of this month, and the dollar has a tendency to weaken.

News: According to the International Air Transport Association (IATA), industry-wide cargo capacity has returned to pre-pandemic levels for the first time in three years, with usable cargo tonne-kilometers (capacity) 3.2% higher than in April 2019. Russian crude shipments to international markets are falling slightly, but there is still no substantial sign that the Kremlin insists the country is cutting production. As the data showed, average seaborne oil exports for the four weeks ended May 28 fell for the first time in six weeks, falling to 3.64 million b/d.

Overall: In the market's view, the tough agreement reached by OPEC+ over the weekend is more of a delay, in which production cuts are mainly concentrated in 2024. However, it is far from quenching thirst. The market's interpretation of Saudi Arabia's separate production cuts is more of an attitude and test for the July production reduction market. If member states fail to implement the next production cuts, Saudi Arabia may lose its determination to cut production. The next OPEC+ meeting will be in December, during which the supply side will be disrupted again, mainly depending on the implementation of production cuts. In addition, the number of shale gas rigs in the US indicates that supply will decline in the second half of the year, and the fundamentals of the oil market may gradually improve.

Technical Analysis

Trading at the daily timeframe, the daily chart has fallen sharply for two consecutive days, and oil prices have retraced to 50% of the original increase (67.1-74.3). From the current point of view, the drawdown is more adequate. However, oil prices have fallen below MA10 and MA20, further testing the support of the MA5 at 70.4. Due to the stickiness of the MACD indicator, there is a lack of guidance signals. The initial resistance above is at the 72.3 line, and the initial support below is the 70 integer mark.

It is recommended that investors do not chase short within the day. Aggressive traders can rebound lightly against the MA5 around 70.4, with a stop loss set at the 69.8 line. If the oil price rises to the 72.3 line, take profit partially and set the remaining position to capital protection and stop earnings.

Trading Recommendations

Trading Direction: Long

Entry Price: 70.500

Target Price: 74.000

Stop Loss: 67.500

Support: 70.000/67.000

Resistance: 74.800/75.600