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Abstract: Before the OPEC meeting, crude oil was under selling pressure as there were signs of disagreement between Saudi Arabia and Russia over a cut in production. Saudi Arabia accuses Russia of violating its production plans to restrict exports to other countries that have imposed bans on its energy goods.

Fundamentals

On Wednesday, WTI crude fell 2.55% for the day as of the first half of the European session and is now trading at US$67.80 a barrel. Russia's crude oil shipments to international markets are falling slightly, but there are still no tangible signs that the Kremlin insists Russia is cutting production, which was an important factor in the sharp sell-off in crude oil prices for two consecutive trading days.

The data showed that the average export volume of crude oil by sea for the four weeks ended May 28 dropped to 3.64 million barrels per day for the first time in six weeks. The data smoothed some of the volatility in the weekly data but showed that crude oil flows to international markets remained high, more than 1.4m barrels per day higher than at the end of last year and 270,000 barrels per day higher than February, the benchmark month, when production cuts were promised.

OPEC+ will hold a meeting on June 4 to assess the oil market and its response to demand concerns.

There are signs that Russia has not fulfilled its promise to cut production, which may cause dissatisfaction among other members. Further signs of conflict could lead to a breakdown in the negotiations and a breakdown in the cartel's output agreement. This could translate into a surge in the global supply of crude oil and a bigger sell-off in prices.

Elsewhere, the faster pace of contraction in China's manufacturing sector has dampened sentiment in the Asian session. China's manufacturing PMI showed an acceleration in activity contraction in May, rather than a return to expansion.

Among the 21 industries surveyed, the PMI of 11 industries is located in the expansion range, and the prosperity of the industries shows a certain degree of differentiation. Both production and demand have slowed down, the demand in the manufacturing market is still insufficient, and the release of enterprise production capacity has been restrained. But corporate confidence is generally stable. The expected index of production and operation activities was 54.1%, 0.2 percentage points higher than that of the corresponding period of last year. The operation was basically stable, and the enterprises remained optimistic about the recent development of the industry.

Overall observation: Lower oil prices are not positive for oil-producing countries. A sharp drop in prices starts from fundamentals and may end at fundamentals. It is believed that the OPEC+ meeting to be held this weekend will find the most common ground in the interests of all parties to maintain the current price stability.

As for China, we should not expect China's economic growth to be comparable to the level before 2020. However, this does not mean that China will not return to its original state, but the recovery may take longer, and the growth may be more reasonable and more reflective of the reality in this field. It is worth mentioning that China is the world's largest importer of crude oil, and weak economic activity in China will have a significant impact on oil prices.

Technical Analysis

WTI crude oil fell faster after falling below the wedge support, indicating that the downward trend may further expand. Prices are likely to quickly retest pre-support as it stagnates near recent lows.

100SMA is lower than 200SMA, indicating that the path of least resistance is downward or may fall further. However, the oscillators suggest this is not the case.

Stochastic is already in the oversold zone, indicating that the shorts are exhausted and the original bulls may take over at any time once the oscillator pulls up.

Also, the RSI has shown signs of moving higher, so bullish pressure could return. A break above the Fibonacci level could mean that the uptrend is resuming.

The Fibonacci retracement tool suggests that more bulls may be waiting for the price to continue to pull back before buying sharply at the 38.2% Fibonacci level of US$71.11 and then the 50% Fibonacci level of US$71.80. And after the bulls approach the 100SMA dynamic inflection point further, a bigger correction could touch the 61.8% Fibonacci level, which is close to the bottom of the previously broken wedge at US$72.50.

Overall, while crude oil prices continue to experience strong sell-offs, trading bands closer to the bottom are often important opportunities for bulls' buying. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 65.50

Target price: 76.82

Stop loss: 60.64

Deadline: 2022-06-1423:55:00

Support: 64.31, 62.46, 61.65

Resistance: 69.74, 71.04, 73.39