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Fundamentals

During Thursday's (July 27th) Asian session, WTI crude oil oscillated narrowly, and it is currently trading near $79.5/bbl. Yesterday, oil prices dropped slightly downward due to U.S. crude oil inventories falling less than expected. WTI crude oil once jumped to 79.7 before the data was released, and it fell back to 78.5 after the announcement of data. Besides, the FOMC confirmed an interest rate hike of 25 bps in July, which was fully in compliance with the market expectations. Powell did not give a hawkish surprise at the press conference and emphasized that core inflation remains high, whether to raise interest rates in September will be determined by the data. He also indicated that the Fed will not cut interest rates this year, but there may be many interest rate cuts next year. The market understands that it is a dovish stance, and the USDX slumped while the oil price was boosted. In the early morning session today, the WTI trend was positive but failed to complete the breakthrough to $80. In the short term, WTI will be technically pulled up, but if it is stopped by $80, the bullish sentiment will be damaged. Currently, bulls and bears are competing without a clear direction, so it is significant to wait for further data.  

Inventory: As of the week to July 21st, EIA crude oil inventory was -0.6 million barrels and reached 457 million barrels, down 0.13%. The expected inventory was -2.348 million barrels, and the previous inventory was -2.891 million barrels. Meanwhile, the EIA Strategic Petroleum Reserve inventory was +0 million barrels, and the previous inventory was +0.1 million barrels. The crude oil inventory for Cushing, Oklahoma was -2.609 million barrels, and the previous inventory was -2.891 million barrels. U.S. EIA Gasoline Inventory was -0.786 million barrels for the week to July 21st, while the expected inventory was -1.678 million barrels, and the previous inventory was -1.066 million barrels. Furthermore, the refined oil inventory was -0.245 million barrels, while the expected inventory was -0.301 million barrels, and the previous inventory was +13,000 barrels. The heating oil inventory was - 1.002 million barrels, and the previous inventory was 0.223 million barrels.  

Today's focus: U.S. initial jobless claims for the week ended July 22nd, the core PCE price index, U.S. June durable goods orders monthly rate, U.S. second-quarter real GDP (seasonally adjusted annual rate), U.S. June wholesale inventories (seasonally adjusted monthly rate), U.S. June Existing Home Sales monthly rate. Big events to watch: the ECB interest rate resolution and ECB President Lagarde's monetary policy press conference.  

Technical Analysis

Daily chart: U.S. oil oscillated yesterday with retracements, once touched the top at 79.7 and reached the bottom at 78.5. The general pattern was in line with our expectations (Oscillating at highs), and the daily line also closed negatively at highs. Regarding the structure, the U.S. oil fell back under pressure yesterday, but there was insufficient space for consolidations, which would also limit the upward momentum of U.S. oil today. Now, the source of momentum for the rise of U.S. oil comes from two parts: its strong upward momentum that keeps the oil prices above the key support, and the impact of the fundamentals that are mainly driven by the rebound (caused by the descending USD) and the tightening of supply and demand. Nevertheless, this bullish strength may not be maintained for too long, the momentum is easy to be wiped out, and it is important to focus on the resistance near 80 today. If the U.S. oil continues to oscillate at highs later, then it will rebound and test the area between 82 and 83. If it fails to oscillate and stabilize, it will restrict the U.S. oil as the sharp rise is not supportive. At present, the only shortcoming of the bullish trend is that the retracements are not large enough as they were stopped at the 5-day SMA. If the oil prices retrace to the 10-day SMA, the slope will be healthier.

Trading plan: Aggressive traders should go short with small positions when WTI reached 79.8, set the stop loss at 80.2 and move the target to 78.5. Once it reached 78.5, traders should move the stop-loss to breakeven and set the remaining positions at 77.5. Traders should not trade long positions until WTI retraces sufficiently in the short term.  

Trading Recommendations

Trading direction: Short

Entry price: 79.800

Target price: 78.000

Stop loss: 80.200

Support: 78.500/77.500

Resistance: 79.800/82.500