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Summary: Crude oil prices managed to maintain a bullish break-even after the EIA reported another unexpected increase in inventories indicating weak demand conditions. The rise in crude oil prices seems to have found a foothold in some positive updates on the U.S. debt ceiling. Nonetheless, the lack of concrete developments in the coming days could eliminate optimism and force a reversal in risk assets such as commodities. After all, a government default could bring a new wave of uncertainty to the global economy and oil demand.

Fundamentals

The overnight market sentiment improved, with traders buying risk assets en masse due to optimistic attitudes toward U.S. debt ceiling negotiations, pushing oil prices up. This largely ignored the bearish performance of the EIA report.

U.S. crude oil inventories rose by more than 5 million barrels last week, the largest one-week increase since January. Yesterday's rise in crude oil prices suggests to some extent that fundamentals are indeed taking a back seat. Meanwhile, the EIA report did not impress, but crude oil prices are still rising as a risky tone shapes the macro trading environment.

Crude oil prices have shown a rotation effect of bulls and bears since the beginning of the year under financial pressure and geopolitical support. In the short term, May may be in a weak phase of the oscillation cycle amid the banking shock at the beginning of the month. However, there is still strong support below $70.00. Entering June, geopolitical and financial events are in the trading stage. If OPEC cuts production or the Fed stops raising interest rates, it could provide upward momentum for oil prices. In the long run, the coexistence of support and pressure may be maintained. This year, prices may be overall at the end of the cycle of the bottom oscillation period, and are expected to maintain in a temporary range of $70.00-$100.00.

In the technical charts, WTI crude oil broke above the top of its symmetrical triangle pattern, indicating that a rally of the same height as the pattern is imminent. However, prices are stagnating around $73.30 per barrel, and some correction may be in store.

The Fibonacci retracement tool suggests that the bulls may want to enter a further correction range of $72.11 and then $71.74. A larger correction could reach the 61.8% Fibonacci retracement level ($71.36).

However, the 100 SMA is still below the 200 SMA, so the path of least resistance may be downward. Meanwhile, the stochastic oscillator has room to move lower before reaching oversold levels, indicating that bears are still in control.

The RSI has more downside to cover before it reaches oversold territory, meaning that a larger correction may be in the works. And a drop below the low near $70.15 could indicate that the bears have taken over.

Technical Analysis

WTI crude has been in recovery mode since bottoming out, but 200-day SMA pressure has been resisting more gains lately.

Nonetheless, current momentum indicators suggest that bearish forces are fading, but are still in control. Specifically, the stochastic oscillator is rising after forming a bullish crossover, while the MACD is accumulating momentum below the 0-axis.

If the bulls re-emerge and push prices higher, they may encounter immediate resistance at the $75.70 handle. A break above that level could see prices regain upward confidence to challenge the 2023 peak of $83.40.

On the other hand, a bearish continuation could lead to a test of near-term support at the $69.40 level. A break below this level could open the door to a 17-month low of $64.20. If this baseline is broken, prices may fall to levels not seen in several months.

Overall, WTI crude oil is forming a bullish double-bottom pattern after falling sharply and hitting new multi-month lows. For this to become a reality, the key support mentioned above must be held. It is recommended to buy the dips.  

Trading Recommendations

Trading Direction: Long

Entry Price: 71.40

Target Price: 83.40

Stop Loss: 67.50

Valid Until: 2022-06-01 23:55:00

Support: 71.79, 71.00, 70.09

Resistance: 73.32, 73.84, 75.05