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Fundamentals

During the Asian session on Thursday (June 1), WTI crude oil fluctuated to the upside, currently trading around $68.3 / barrel. Although the US House of Representatives passed the debt ceiling bill yesterday, it also failed to strengthen oil prices due to weak Chinese data and a stronger dollar. Specifically, China's PMI fell to 48.8 in May, reaching a five-month low. This loosened the previously constructed logic of the Chinese demand-pull, leading to a collapse in oil prices, with WTI falling as low as around 67.1. Of course, another reason is that the EIA's output and inventories shifted upward on Wednesday.

Inventories: As of May 26, 2023, API inventories showed a weekly accumulation of 5.2 million barrels of crude oil, 1.89 million barrels of gasoline, and 1.85 million barrels of distillates.

Supply: U.S. oilfield crude oil production rose to 12.696 million b/d, the highest level since March 2020. While OPEC oil production fell in May. Previously, several producers in Saudi Arabia and OPEC+ voluntarily cut production to support the market, but production increases by other members limited the rate of decline.

News: Kazakhstan exported more oil to the EU in the first quarter of 2023 than in the same period last year, replacing part of Russian oil supplies. Since the embargo imposed by the European Union on Russian oil on December 5, 2022, Kazakhstan has become one of the top countries for European refineries to replace Russian oil. 71% of the country's oil exports are destined for the EU, up from 65% a year ago.

Overall: Oil prices are still a game between the prospect of a macro recession and OPEC+ production cuts. It is difficult for oil prices to break through in any direction before the relief of macro concerns, more-than-expected production cuts, or a recession begins. Therefore, Large fluctuations are still the main line. If there are more than expected macro factors, such as another bank failure, WTI crude oil may test the strong support around the previous low of 64. Conversely, if there is news of a sharp production cut by the end of this week, oil prices may break the resistance around 74 upwards, further testing the strong resistance around 83. Currently, the status quo of the market is that macro recession expectations are gradually strengthening, but there are still obvious bright spots on both supply and demand sides. The trade-off between the two sides is the traction of the oil market oscillation. At present, the oil market is biased towards macro bearishness, with prices tending to the downside. However, the current price is no longer suitable for short chasing, unless the price rebounds to the 70 mark to come under pressure before entering the market. For investors who want to seize the opportunity to trade in the rebound, the best way is to enter the market decisively after oil prices drop to 67 again, that is, after confirming the support for the second time.

Technical Analysis

Trading at the daily timeframe, oil prices fell sharply under pressure at the level of 70 yesterday, falling to the level of 67. In the evening, another wave of the rapid rally appeared, but the 69.5 line was blocked and retreated, with the daily chart finally closing another black body. During the day, oil prices rebounded slightly today, basically oscillating up and down around the 68.5 line. Although this wave of bears seems to be able to maintain, the pattern of short selling is not in view. After an intraday rally, it is possible to break through the moving average to suppress strength. While bearish on crude oil, we should also pay attention to the strength of the rebound. Personally, the 67-67.5 short-term bottoms higher are more optimistic, with the line of 67 can be used as a defensive long and open position.

Trading Recommendations

Trading Direction: Long

Entry Price: 67.100

Target Price: 70.100

Stop Loss: 64.000

Support: 67.000/64.000

Resistance: 69.500/74.000