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Fundamentals

During the Asian session on Friday (May 26th), WTI oil prices were narrowly oscillating to the upside and are currently trading near $71.8.  Besides, oil prices fell sharply last night, with WTI crude oil futures for July 2023 delivery down $2.51/bbl. (-3.38%) to settle at $71.83/bbl. The decline was caused by Russian Deputy Prime Minister Novak downplaying the prospect of further production cuts by OPEC+ at next week's meeting as unlikely, saying the current oil price is reasonable. At the same time, he stated that he does not think the oil price will fall after OPEC+ further production cuts and Brent crude prices will end the year slightly above $80 per barrel due to increased summer demand and OPEC+ production cuts. Interestingly, it was only on the 23rd that Saudi Energy Minister Abdul Aziz bin Salman issued a strong warning that he would make short sellers "cry in pain" and cautioned them to be "careful", and now Russia is here to put out the fire.

Data: The initial jobless claims rose 229,000 in the week ended May 20th, better than the expected 245,000, and the U.S. job market remains strong. In addition, the first-quarter data, including the real GDP, real personal consumption expenditure, and the core PCE price index, was revised up from 1.1% to 1.3%, 3.7% to 3.8%, and 4.9% to 5% respectively, all were better than expected.

Inventory: U.S. crude oil inventories decreased by 12.456 million barrels to 455.17 million barrels in the week ended May 19th, the largest decline since November 2022, compared to market expectations of an increase of 0.8 million barrels. Moreover, gasoline inventories decreased by 2.053 million barrels to 216.3 million barrels, compared to expectations of a decrease of 1.1 million barrels. Also, distillate stocks decreased by 562,000 barrels, compared to expectations of an increase of 385,000 barrels.

In general, the recent macro and news impacted oil prices tremendously and the market has not started trading the supply and demand fundamentals yet. Meanwhile, the oil market will maintain the oscillation before the settlement of the two major issues: the U.S. debt ceiling issue to be confirmed next week (no matter how the result will be) and the Federal interest rate resolution between June 13th-14th. That is, the macro impact in mid-June will have an answer, before which the market will trade based on the two logics, with the oil market returning to the fundamentals after that. Macroscopically, it is better to stop trading overly but trade rapidly, as the future fundamental factors are worth analyzing. At present, the fundamental optimistic situation has not changed, traders should wait patiently. If the macro is bearish to oil prices, it may be acceptable as an excellent opportunity to build a long position. On the contrary, the above cost-effective space should be considered. Finally, investors need to pay close attention to the situation in early June, as a new round of rallies may emerge.    

Technical Analysis

Daily chart: WTI crude oil is running in a descending channel. Nonetheless, it appears that a new round of appreciation may occur after oil successfully tested the $64 level twice and rebounded to form a double bottom pattern. At the moment, WTI crude oil tests the key support at $70 repeatedly. It is expected that WTI crude oil will surge from $70 after the settlement of the U.S. debt ceiling issue and the OPEC+ conference at the beginning of June.  

Trading Recommendations

Trading direction: Long

Entry price: 71.000

Target price: 80.000

Stop loss: 67.000

Support: 72.600/70.000

Resistance: 76.500/80.000