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Summary: WTI crude oil prices broke above the $75 range earlier this month and now appear to have stabilized near $80 per barrel. However, uncertainties in supply and demand are limiting further price increases.

Fundamentals

The global crude oil market's supply deficit is expected to widen over the next few months, with deficits of around 2 million barrels per day in July and August and 700,000 barrels per day in June. Analysts predict Brent crude prices to range between $85-$90 per barrel for the rest of the year, while WTI crude prices are anticipated to be between $80-$85 per barrel during the same period.

Despite the general expectation of supply shortages for the remainder of the year, the market seems somewhat unconvinced. Crude oil demand in developed countries appears to be stagnant. The recent key driver behind higher oil prices has been production cuts by oil-producing countries, including Saudi Arabia, but it remains unclear how long these cuts will last. Beneath the surprising calm on the surface, hidden tensions continue to persist in the oil market.

Current demand growth continues to be driven by Asian countries, with steady demand from Brazil and the Middle East. If Saudi Arabia extends its voluntary production cuts, the deficit in September could exceed 1.5 million barrels per day. Even if Saudi Arabia halves its voluntary production cuts, the deficit would still surpass 1 million barrels per day.

On other fronts, the EIA inventory report showed a smaller-than-expected reduction in inventories, indicating that demand may not be as robust as anticipated. The market had originally expected a reduction in output of 2 million barrels, but the actual figure only saw a decrease of 600,000 barrels.

Prospects for rate cuts and tax reductions that may boost global business and consumer activity, along with expectations of additional stimulus measures by China, could further drive current crude oil prices higher. In turn, this may lead to increased purchases of fuel and energy commodities, including crude oil.

Technical Analysis

WTI crude oil prices have been steadily rising since late June, accelerating upwards after breaking above the 50-day and 200-day SMAs as well as the downtrend line connecting lower highs since September 2022. In the past few trading days, WTI crude has shown consolidation signs near the three-month high of around $79.90.

Currently, momentum indicators suggest that bullish forces are dominant. Specifically, the RSI has flatlined slightly below its 70-overbought threshold, while the MACD remains strong above the 0-axis, reaching its highest level since April.

In the hourly time frame, the uptrend remains intact as the bulls have been in control since the beginning of the month. Prices seem to have found increased buying interest in the mid-channel area.

If this level continues to hold as support, crude oil prices may target the upside objectives marked by the Fibonacci extension tool. The 38.2% level aligns with the channel top at $80.49, while the 50% level stands at $81.13.

A stronger bullish momentum could drive crude oil prices toward the 61.8% level at $81.78 or the 76.4% level at $82.57. Further extension reaches $83.86.

Finally, the stochastic oscillator is trending higher, indicating the presence of bullish pressure. But the oscillating indicator is also approaching the overbought territory, suggesting that momentum may be fading. A downturn would imply a return of bearish pressure, and prices may follow suit.

The RSI has more room to retrace before reaching the overbought territory, indicating that the bulls are becoming exhausted, possibly leading to a correction. This could trigger buying opportunities on dips during this period.

Trading Recommendations

Trading Direction: Long

Entry Price: 79.80

Target Price: 83.86

Stop Loss: 73.70

Valid Until: 2023-08-09 23:55:00

Support: 78.17, 77.14, 74.48

Resistance: 80.00, 81.24, 82.16