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Abstract: Entering the New York session on Thursday, WTI crude oil experienced a slight decline to around $77.50. With the market awaiting the Jackson Hole Economic Symposium, the oil prices breaking below previous lows confirmed the bearish momentum.

Fundamentals

WTI crude oil futures for October settled at $78.89 per barrel, marking the first time in a week that they dipped below $80.00 per barrel, with an intraday decline of 1.00%. The recently published EIA report had mixed implications. Crude inventories decreased by 6.1 million barrels, yet investors also observed bearish signs in the report, as it indicated that U.S. crude production had risen to 12.8 million barrels per day, reaching a three-year high.

Additionally, implied gasoline demand has fallen below 9 million barrels per day for the sixth week out of the past seven, presenting a weak performance for gasoline demand during what should be the peak driving season of the summer. For the fuel oil market, this suggests that cost-driven margin softening is occurring, with both high and low sulfur prices declining.

Currently, there's an intensified tug-of-war between bullish and bearish forces in the oil market. As concerns over downward pressure on the macroeconomic level increase and European natural gas prices recede, market sentiment has turned bearish. Regarding the fundamentals of fuel oil itself, high-sulfur fuel oil remains relatively resilient. However, considering that cracking spreads are at elevated levels and summer is approaching its end, there's a certain risk of retracement given the weakening trend in crude oil.

Market sentiment leading up to the Jackson Hole Economic Symposium might influence oil prices. If policymakers emphasize hawkish views, there could be a flight to safety. Notably, Fed Chairman Powell might highlight plans for another rate hike in September, potentially leading to a stronger U.S. dollar and lower prices for risk assets like oil. On the other hand, Powell's cautious remarks could bring back risk appetite, indicating potential upward movement for crude oil and other commodities.

Technical Analysis

WTI crude oil has broken below the neckline of a head and shoulders pattern, confirming a reversal of the uptrend. From this point, prices could potentially decline by an extent equivalent to the pattern's height. Currently, the price range for WTI crude oil is approximately $75.00-$80.00, suggesting that resulting selling pressure could persist for around $5.

However, technical indicators still reflect the presence of bullish pressure. In the 4-hour chart, the 100 SMA is above the 200 SMA, indicating that the path of least resistance is to the upside or that the upward trend could still resume. The crude oil closing price is below the dynamic turning point of the 200 SMA, potentially acting as resistance for price rallies.

The stochastic oscillator has risen from oversold territory, suggesting that the bulls might take over the market. This could stimulate a correction in crude oil prices toward the resistance level at $80.00, and holding above this level might provide traction to the upward trend.

Likewise, the relative strength index (RSI) has also climbed, indicating a potential return of bullish momentum. There is still ample room for the oscillating indicator to rise before reflecting an overbought condition.

However, as mentioned earlier, the WTI crude oil has broken below the neckline of the head and shoulders pattern, confirming a reversal of the uptrend. Any upward price movement presents an opportunity for short positions. In terms of trading strategy, it is recommended to go short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 80.00

Target Price: 75.60

Stop Loss: 81.90

Valid Until: 2023-09-07 23:55:00

Support: 77.52, 77.16, 76.08

Resistance: 79.31, 79.86, 80.28