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Fundamentals

During Friday's (July 14th) Asian session, WTI crude oil narrowly oscillated, and it is currently trading near $76.8/bbl. Yesterday, the oil prices rose slightly due to OPEC+'s bullish oil demand, and China's crude oil imports are at a high level. Meanwhile, OPEC's latest monthly report raised its forecast for oil demand growth in 2023 to an increase of 2.44 million bpd, 90,000 bpd higher than the previous month. It also predicted that global oil demand will grow by 2.25 million b/d in 2024, or 2.2%. Recent macro risks have been significantly reduced, and oil prices are also on the way up and breaking through several resistances, showing an obvious ascending trend. However, WTI is exhausted to surge further at the 76.8 key resistance position now, and investors should be worried about a retracement, especially after the USDX plunged for 7 consecutive days, the demand for rebound and consolidation is getting stronger.

News: The IEA report expected that the oil demand will hit a record high of 102.1 million bpd this year, but broader economic headwinds and interest rate hikes suggest a lower-than-expected demand increase. In addition, the IEA cut this year's demand incremental by 200,000 bpd, to an increase of 2.2 million bpd. Furthermore, data released by China's General Administration of Customs demonstrated that China's crude oil imports in June were 52.062 million tons, a sharp increase of 45.3% YoY, hitting the second-record-high for monthly imports.　

In general, the sentiment rebounded from the end of June after the market reaction against Powell and other officials' hawkish remarks. Besides, Yellen's visit to China led to good progress in U.S.-China relations, improving the overall commodity sentiment in an optimistic direction. Regarding the actual economic data, as it was just released, the U.S. CPI was recorded at 3% in June, exceeding the market's expectations. About the impact, on the one hand, the market has been counting on another interest rate hike by 25bps by the end of July. On the one hand, the probability of two consecutive interest rate hikes in a year is lowered, at least before the end of the month, the macro is unlikely to have a large deviation from expectations. Thus, the main logic of the market trades return to the fundamentals of supply and demand, that is, the tightening of supply coupled with the seasonal demand rebound in the third quarter. Moreover, the risk premium of the unstable supply is also gradually traded by the market, and the marginal change in supply and demand may dominate oil prices in the next period, which will be reflected in the inventory. Currently, the de-stocking is well-maintained, and investors should keep a bullish view, but WTI is now getting weak at the high level, thus investors should be careful of a retracement.

Technical Analysis

Daily chart: U.S. oil continued to shock at high yesterday, and it retraced to 75.2 after pulling up to test 77 last evening. Then, although there was a retracement to 76, WTI rebounded in the second half of last night and once reached the high point at 77.3, with the daily chart closing positively. Now, the MACD forms a golden cross and gets wider, and the SMAs are still dispersed, while the oil prices are standing above the 5-day, 10-day, and 20-day SMAs, maintaining a bullish pattern for WTI. However, today's trend indicates that WTI may form a bearish divergence, when keeping a bullish idea, investors should also beware of a retracement.

Today's trading plan: Try to go short with small positions appropriately. The lower support should be near the 5-day SMA (75.5) and investors can try to go short with small positions and a small stop-loss by setting the stop-loss at today's high. After that, try to take profits when WTI arrives at 75.5, where investors should move the stop-loss to breakeven, and set the secondary target at 74.5.

Trading Recommendations

Trading direction: Short

Entry price: 76.800

Target price: 74.500

Stop loss: 77.500

Support: 75.500/74.500

Resistance: 77.500/80.000