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Summary: WTI crude oil prices are set to decline for the fourth consecutive week since plummeting into a bear market at $93.98, posing a headache for OPEC+ leaders reviewing production targets later this week.

Fundamentals

Despite a significant rebound in WTI crude oil prices last Friday, nearly fully recovering from the losses on the preceding Thursday, the weekly decline remains around 5%, down over 20% from September's peak.

The substantial drop in international crude oil prices results from various factors. In recent weeks, oil prices have been steadily softening, partly due to supply exceeding expectations. Exports from Guyana and the North Sea are set to increase next month, while US exports have been consistently rising.

The increase in production has clouded the outlook ahead of the meeting of the OPEC and its allies this weekend. The group's largest oil producers, Saudi Arabia and Russia, have committed to continuing additional production limits until the end of the year, despite a recent increase in Russia's crude oil exports.

Additionally, technical factors have intensified the recent price weakness. Major market indicators have witnessed a bearish futures contango structure for the first time in months, and some moving averages have been breached in recent days, exacerbating selling pressure.

Earlier last week, inventory data from the US indicated a sharp increase in stocks, particularly at the major storage hub in Cushing, Oklahoma. These builds occurred as refineries underwent seasonal maintenance, reducing demand for crude oil. With the increase in US production, overseas shipments have also surged, contributing to market oversupply. The International Energy Agency (IEA) stated earlier this week that production growth means the global market will not be as tight this quarter as anticipated.

Although risks associated with the Israel-Hamas war persist, this has further exacerbated the softening of prices. While many investors purchased bullish options during the outbreak of the conflict, they are now paying higher premiums for bearish options to hedge against further declines.

Following the recent decline in oil prices, the softening of the crude oil curve structure, and weak economic data, all eyes are now on this week's meeting.

JPMorgan predicts Brent crude to remain relatively stable in 2024 as OPEC+ maintains supply constraints, with a slight decrease in prices expected in 2025 following a relaxation of the balance. Analysts, including Natasha Kaneva, project an average price of $81 per barrel for this year, $83 per barrel in 2024, and $75 per barrel in 2025. Demand is expected to increase by 1.6 million barrels per day in 2024, with two-thirds of demand growth stemming from economic expansion, while aviation fuel continues to normalize to meet the remaining demand. However, non-OPEC+ oil-producing countries are projected to increase supply by 1.7 million barrels per day in 2024, surpassing demand growth.

Technical Analysis

WTI crude oil prices have currently formed a series of lower highs, connected by a descending trendline, with the recent lower high at $77.60. This resistance zone appears to be attracting bears once again. If this holds true, the price might retrace towards the next downside targets marked by the Fibonacci extension tool.

The 38.2% Fibonacci retracement level stands at $73.87, while the 50% Fibonacci retracement extension is at $72.95. Stronger selling pressure could drive crude oil prices down to the major psychological level of $72.00. The 76.4% Fibonacci retracement level is at $70.91, with a comprehensive extension at $69.07.

The 100 SMA is below the 200 SMA, indicating a downward-biased resistance path, but the moving averages also appear to be oscillating. A bullish crossover may lead to a breakout above the dynamic resistance level at $76.85 and reverse the selling sentiment.

Meanwhile, the stochastic oscillator has been showing overbought conditions for an extended period, suggesting that a downturn implies a return of selling pressure. Before reflecting oversold conditions, the oscillating indicators still have sufficient downward space.

Additionally, the RSI is also in the overbought territory, indicating exhaustion in buying pressure. Therefore, once the oscillating indicators begin to turn downwards, selling pressure may take over. In terms of trading, going short at highs is recommended as the main strategy.

Trading Recommendations

Trading Direction: Short

Entry Price: 78.50

Target Price: 73.37

Stop Loss: 80.80

Valid Until: 2023-12-04 23:55:00

Support: 75.63, 74.89, 73.33

Resistance: 77.63, 78.67, 79.67