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Fundamentals

During the Asian session on Friday (May 19th), WTI oil prices oscillated in a narrow range and are currently trading near $72.5. Besides, strong U.S. economic data pushed the USD to a two-month high and expectations of another Fed rate hike in June rose, with oil prices again under pressure. WTI declined slightly during yesterday's evening session, but as U.S. initial jobless claims fell sharply, long sentiment improved slightly and thus WTI largely recovered the overnight losses.

Supply: Saudi Arabia's crude oil exports rose to 7.52 million bpd in March from 7.455 million bpd in February, the International Energy Forum (IEF) said Thursday, citing data from the Joint Organization Data Initiative (JODI). In addition, the devastation of the fires in the Alberta region of Canada is expanding, bringing down oil supplies there.

News: Two Federal Reserve policymakers demonstrated on Thursday that U.S. inflation doesn't look cool enough for the Fed to pause rate hikes. Speeches by Dallas Federal Reserve Bank President Logan and St. Louis Federal Reserve Bank President Bullard appeared to represent a minority hawkish view, but one that has gained more support ahead of the Fed's next meeting on June 13th-14th. On Thursday, the interest rate futures market reflected a more than 30% chance of a rate hike in June, up from 10% just a week ago.

Data: Initial jobless claims fell by 22,000 to a seasonally adjusted 242,000 in the week ended May 13th, the largest drop since Nov 20th, 2021. In recent months, there has been a lot of talk about the U.S. economy being close to the recessionary tipping point, yet, surprisingly, the economy is still on an expansionary trend and employment remains strong. This trend is likely to continue in the near, if not distant, future. Moreover, the current U.S. does not show early signs of a recession as defined by the National Bureau of Economic Research (NBER), but rather a variety of macro-trend indicators exhibit continued economic growth, which is quite astounding.

Geopolitical Information: The Russian Defense Ministry released a war report on the 18th that Russian forces launched offensives against Ukrainian forces in several directions, including Kupyansk, Krasnyi Liman, Donetsk, Zaporizhzhya, and Kherson. Meanwhile, Russian forces also launched strikes at night with sea-based and air-based precision-guided weapons against several large warehouses in Ukraine containing foreign weapons.

In general, resilient economic data boosted expectations for the Fed to raise interest rates again in June, pushing the USD higher and increasing the downside risk of oil prices. However, the U.S. and G7 countries will announce new initiatives to sanction Russia that may increase geopolitical tensions, with oil prices' decline possibly being limited. Furthermore, in the trade-off between multiple and short factors, oil prices' further trend will be determined by the U.S. debt ceiling agreement results. Nevertheless, in accordance with the past 104 times, the agreement will be reached at the end after a period. Therefore, the next short-term target is to see marginal changes in all aspects and geopolitical situations, especially the supply margin. Now, the oil prices fail to inspire the expansion of the U.S. shale gas supply, and the OPEC+ meeting in June, as well as the previously revealed information, must be closely watched.

Technical Analysis

Referring to the daily chart, WTI will test the resistance at $73.6 after breaking the descending channel that started in the middle of April. If WTI breaks through the resistance, this position will become support and start to form a new pattern, where the bears and bulls will be competing. Presently, MACD starts to form a golden cross, suggesting a bullish signal.  

Trading Recommendations

Trading direction: Long

Entry price: 72.500

Target price: 77.500

Stop loss: 67.500

Support: 70.000/64.000

Resistance: 73.600/77.500