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Fundamentals

During the Asian session on Thursday (May 18th), WTI oil prices were narrowly oscillating downward and are currently trading near $72.5. Besides, oil prices rebounded from the lows yesterday due to market optimism about oil demand and the U.S. debt ceiling. Biden and GOP leader McCarthy stressed their determination to reach a deal as soon as possible to avoid a catastrophic debt default on the economy, hinting that an agreement to raise the $31.4 trillion debt ceiling is expected to be finalized next week. Meanwhile, the main WTI crude oil futures contract rose $1.97/barrel to close at $72.83/barrel, up 2.78%. But the unexpectedly large increase in U.S. EIA crude oil inventories caused oil prices to be blocked from rising today, falling back slightly.

News: Russia's national crude oil production output was about 9.67 million barrels per day in April, down more than 440,000 barrels per day from February and close to the promised 500,000 barrels per day for a production cut. Russian President Vladimir Putin said Russia's commitment to cut crude oil production is aimed at supporting global oil prices and explained that the situation is now stable.

Inventories: Data released by the EIA demonstrated that U.S. gasoline inventories decreased by 1.4 million barrels to 218.33 million barrels in the week ended May 12th, compared to expectations for a decrease of 1.06 million barrels and a previous decrease of 3.167 million barrels, because of soaring demand for gasoline. However, U.S. crude oil inventories surged by 5.04 million barrels, compared to an increase of 2.951 million barrels and an expected decrease of 920,000 barrels. It is the largest increase in crude oil inventories recorded since the week of February 17th, 2023.

Generally: Positive signals emerged from the negotiations on the debt ceiling in the U.S. Congress by the two Parties, a development that boosted market confidence and saw risk asset prices move higher across the board. The risk aversion speculation will eventually pass if the debt ceiling risk is temporarily eased or completely lifted. Currently, the global economic outlook is still covered in shadow, these are the fundamental factors limiting oil prices, with the supply remaining the biggest support. On the one hand, OPEC+ makes firm decisions to defend oil prices, on the other hand, the U.S. strategic oil reserves hit a new low of nearly 40 years on the repurchase of oil, and the replenishment of storage will take place soon or later, or as early as expected in June. Finally, geopolitics is also a mystery factor for oil prices, which can greatly disturb the crude oil supply. Overall, the oil market is currently mixed with positive and negative information, investors need to pay attention to the marginal changes in oil prices as the decline is limited, while the upper limit is determined by the marginal improvement in demand and supply.

Technical Analysis

Referring to the 4H chart, 73.60 becomes the initial examination after WTI breaks through a descending trend that has lasted for more than 1 month. It is the 50% Fibonacci retracement of the previous decline and the area where support turned into resistance previously. Furthermore, the breakthrough indicates the emergence of reversal from the bottom, with WTI may climb up to 76. Nonetheless, if WTI falls from highs, it may step back the trend line or even plunge to 70 and oscillates.  

Trading Recommendations

Trading direction: Long

Entry price: 72.500

Target price: 80.000

Stop loss: 67.500

Support: 70.000/64.000

Resistance: 76.000/80.000