Chapter 35 08/14 WTI: Bulls Remain in Control, Focus on Buying the Dips
Summary: WTI crude oil price rebounded from the trendline support at $81.30 on Monday, trading around $82.50. The price seems to have completed an upward breakout from the descending channel formation. The current rebound has prevented the crude oil price from dropping into oversold levels on the 14-hour RSI.
Fundamentals
In the past week, WTI crude oil has seen seven consecutive weeks of gains, marking the longest weekly winning streak since 2022. The International Energy Agency (IEA) forecasted record global crude oil demand in its August report, with tightening supplies. The OPEC also projected in its report that due to ongoing Saudi Arabian production cuts, the global crude oil market supply gap for this quarter will exceed 2 million barrels per day.
Recent oil price increases have been supported by both macroeconomic factors and supply-demand dynamics. On the macro side, U.S. inflation remains below expectations, causing a notable reduction in the probability of Fed rate hikes within the year. Supply-wise, crude oil supply continues to tighten, with Saudi Arabia beginning an additional 1 million barrels per day production cut and demonstrating a high level of compliance. Russia's July crude oil exports dropped by 200,000 barrels per day month-on-month, reaching the lowest level since December 2022. On the demand side, strong demand for refined products has led to a continuous decline in global petroleum inventories for three consecutive months.
From a fundamental perspective, WTI crude oil is in the later stages of a relatively busy market period. Last Friday, the U.S. July Producer Price Index (PPI) increased 0.8% year-on-year, higher than June's 0.2%, surpassing the expected 0.7%. The month-on-month growth rate also jumped from 0% last month to 0.3%, exceeding the expected 0.2%. The July PPI for final demand excluding food and energy also exceeded expectations at 0.3% month-on-month, higher than the -0.1% reported for June.
In the latest U.S. crude oil inventory data, API weekly crude stocks increased to 4.067 million barrels as of the week ending August 4, up from the previous week's -15.4 million barrels. On the other hand, EIA crude oil inventories changed by 5.851 million barrels, falling short of the expected change of 0.567 million barrels, but higher than the previous week's -17.049 million barrels.
It is expected that WTI crude oil prices will rise to the range of $85-$90 in the coming weeks. Given that crude oil is the most speculative commodity, at least temporarily reaching these levels for WTI crude oil is not a daunting task. This factor also contributes to explaining the high volatility in its price.
While there is strong upward momentum for crude oil prices, there are still many challenges ahead. Therefore, our outlook for the second half of 2023 is optimistic with a forecast of $85 for WTI crude oil and $90 for 2024. However, we acknowledge that the risk balance tilts toward the upside.
Technical Analysis
Technically, the mid-term price of WTI crude oil seems to have completed an upward breakout from the descending channel formation. The MACD also indicates an impending bullish crossover, supporting the current shift in sentiment.
As a result, the bulls should look to extend the ongoing rebound to $84.32 or higher toward $86.80. On the other hand, bears have their sights on a potential correction target around $81.56 or lower at $81.22.
In the daily chart, WTI crude oil appears to be trading within an ascending channel. However, the MACD suggests the possibility of some correction as it approaches a downward crossover. Consequently, the bears will set a potential correction target around $79.39 or potentially lower at $76.07. On the flip side, the bulls will seek to extend the current upward momentum to $86.80 or higher toward $90.12.
Overall, a clear close above $83.40 is indicative of a bullish trend for WTI crude oil, bolstering optimism about the potential expansion of the upward pattern in the coming weeks. However, given the price's slight dip below key resistance, the possibility of another downward correction within the channel cannot be ruled out until buyers regain control. Nevertheless, the current market remains under bullish control, with a primary strategy of buying the dips recommended.
Trading Recommendations
Trading Direction: Long
Entry Price: 82.00
Target Price: 84.32
Stop Loss: 80.00
Valid Until: 2023-08-28 23:55:00
Support: 81.70, 81.22, 80.61
Resistance: 83.26, 84.01, 84.32
