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Fundamentals

During the Asian session on Monday (May 15), WTI oil prices fluctuated in a narrow range to the upside. The unexpected buildup in U.S. crude inventories last week and the U.S. debt ceiling impasse have fueled risk aversion, with the dollar's rally weighing on oil prices. However, the market's expectation of a seasonal increase in crude oil demand is still in place. At the same time, the recently released US economic data is mixed, and some US economic data has improved, which to a certain extent has also eased the market's concerns about the US recession, and has supported the gradual stabilization of oil prices as well.

Inventories: According to the inventory report released by the EIA, U.S. crude inventories rose 2.951 million barrels to 462.58 million barrels in the week ended May 5, compared with an estimate of a decrease of 917,000 barrels. Cushing crude oil inventories rose 397,000 barrels to 34.007 million barrels. Gasoline inventories fell by 3.167 million barrels to 219.71 million barrels, compared with a previous estimate of 1.233 million barrels. Besides, distillate inventories, including heating oil and diesel, fell by 4.17 million barrels to 106.15 million barrels, compared with a previous estimate of a decrease of 808,000 barrels.

Demand: EIA data showed that U.S. refined oil demand averaged 19.874 million barrels per day in the four weeks that ended May 5, up 2.5% YoY and down 0.8% MoM. While OPEC further raised its 2023 oil demand growth forecast, the overall forecast for global demand growth remains unchanged, as there are possible downside risks to demand growth in other regions. China's oil demand is expected to rise by 800,000 b/d, up from 760,000 b/d last month. In addition, oil demand will be driven by new impetus as the market expects the start of the European and US driving season at the end of May, and the Biden administration says it plans to buy back crude oil later this year to fill Strategic Petroleum Reserve (SPR) inventories.

Supply: Iraq has asked Turkey to restart an oil export pipeline that has been shut down for nearly seven weeks, but the timing of the pipeline's resumption remains uncertain, in a statement from Iraq's Kurdistan regional government. Besides, data released by the oil regulator showed that Nigeria's oil production fell below 1 million b/d in April, the lowest in seven months. Nigeria previously produced 2.2 million b/d of oil but has struggled to meet its 1.8 million b/d OPEC quota due to stolen crude, damaged pipelines, and a lack of new investment in the sector.

Overall: the Fed will halt raising interest rates in June is gradually becoming the market consensus. However, the impasse in the US debt ceiling negotiations remains unresolved, and macro risk aversion will still weigh on oil prices, but tight fundamentals will still support oil prices. For now, it is necessary to continue to closely monitor the progress of the US debt ceiling negotiations. Oil prices are expected to remain oscillate this week, with WTI at $70.

Technical Analysis

In the daily chart, the death cross signal of MACD remains unchanged. After a few days of rebound from the previous round of 64-74, the price is now oscillating near the 50% retracement level and tends to stand firm in the short term. As the KDJ golden cross signal still exist, the possibility of a strong rebound by the bulls cannot be ruled out. Moreover, the current pattern of double bottom is still relatively complete. Therefore, the price decline is still due to pullback processing, not reversal processing.

Trading Recommendations

Trading Direction: Long

Entry Price: 70.000

Target Price: 80.000

Stop Loss: 64.000

Support: 70.000/64.000

Resistance: 80.000/83.300