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Fundamentals

During the Asian session on Tuesday (October 24), WTI crude oil fluctuated downward and is currently trading around 85.9 dollars per barrel. Oil prices fell sharply yesterday, mainly due to the Palestinian-Israeli conflict. Under the humanitarian vortex of countries around the world, diplomatic action reduced the risk of supply disruptions. Over the weekend, aid convoys began arriving in the Gaza Strip from Egypt and Israel suspended plans for a ground incursion into northern Gaza to negotiate the release of hostages and the conflict eased slightly. As a result, oil prices began a sharp correction, from 89.7 on Friday night to 85.6, which also confirmed the pattern of wide volatility. The conflict of the past two weeks is the core factor dominating oil prices. However, as time goes by, if the geopolitical conflict cools down, or tends to the conflict between Russia and Ukraine, then crude oil is likely to give up the geopolitical premium. After the geopolitical conflict, oil prices will surge from 80.6. However, the price has now fallen back to 85.6, and the premium risk is also easing significantly. We also have to take into account that oil prices swooped down from 94 before the conflict. At the current position, crude oil is still in the context of big inventory cuts and OPEC+ production cuts, and the fundamentals have not changed. If oil prices try to dive deeper, a radical improvement in the conflict is needed. Therefore, our strategy is still to buy low and sell high. At present, the value for short positions of oil prices is not high. As the price fluctuates on the lower edge, investors are not recommended to chase shorts but consider continuing to go long at 85.3 with small positions. At the moment, bears will not easily go short boldly, because no one knows whether the situation will get out of control.  

Geographical: The Wall Street Journal reported that Israel would allow fuel deliveries if all hostages were released. US President Joe Biden said a ceasefire could be negotiated after the release of the hostages in Gaza. Israel claimed in a statement that the two hostages released by Hamas had been handed over to the Israeli military and would be transferred to a medical facility. The United Nations said 20 trucks carrying humanitarian aid entered the Gaza Strip from Egypt on Monday.  

Today, investors should keep an eye on the Eurozone PMI, the US October PMI, and the US Fed Manufacturing Composite Index for October. In addition, the development of the situation in the Middle East also needs to be paid special attention.

Technical Analysis

Oil prices fell sharply yesterday and fluctuated all the way down after the opening, falling as low as 85.2. Subsequently, oil prices rebounded slightly, eventually closing a long bear candle. As can be seen from the figure below, the oil price is still in the box and close to the lower edge. In addition, MACD is near the 0 axis, which has formed a golden cross and has begun to widen. There is demand for a rebound in the market, and support below initially looks at the 85-85.2 area. If this support is broken, then strong support will be at 84.3, where there is a local triple bottom. The initial resistance above is at 88.5 and strong resistance is in the 89.7-90 area. For intraday trading, it is recommended that investors still buy low and sell high. Given where the price is at the moment, the loss ratio of going long with small positions will be higher. As the current fluctuation of oil prices is very unstable, the stop-loss order will be triggered with a little inattention. Therefore, investors must not sell into corrections.

It is recommended that investors mainly buy low and sell high. If the oil price retraces largely to 85.2, you can go long with small positions. The stop loss is set at 84.7, the first target to take profit is 88.2, where you can reduce your positions and move the stop loss to break even, and the second is 89.7. If the oil price surges to 89.7, you can go short with small positions. The stop loss is set at 90.2, the first target to take profit is 88.2, where you can reduce your positions and move the stop loss to break even, and the second is 86.2.

Trading Recommendations

Trading Direction: Long

Entry Price: 85.200

Target Price: 88.700

Stop Loss: 84.700

Support: 85.300/84.300

Resistance: 88.300/89.700