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Summary: WTI crude oil appears to "cap off" two consecutive days of gains. During the early European session on Thursday, spot prices dipped to around $86.30. Nevertheless, crude oil prices remain under upward pressure due to further declines in U.S. crude inventories and extended production cuts by OPEC+.

Fundamentals

Earlier data released by the American Petroleum Institute (API) on Thursday showed a substantial reduction in crude oil inventories by 5.521 million barrels, significantly surpassing the expected 1.429 million barrels decline and the previous week's 11.486 million barrels decrease. This significant decrease in crude oil stocks continues to support elevated oil prices.

Furthermore, the world's two largest oil-producing nations, Saudi Arabia and Russia, have announced plans to extend crude oil production cuts through the end of 2023. These measures have been instrumental in driving recent surges in oil prices. Notably, this production cut will see Saudi Arabia's crude oil output approach nearly 9 million barrels per day in the coming months of 2023, subject to monthly reviews.

In addition, further insights into crude oil prices may emerge from the EIA inventory report set to be released later today. Market expectations suggest that inventories continued to decline in the week of September 1st, following the significant 10.6 million barrel drop in the week ending August 25th. However, this week's expected decrease is considerably smaller at 2.06 million barrels, potentially indicating a slowdown in demand or improved production matching consumption.

However, a smaller-than-expected inventory decline could signal stronger buying during the week of September 1st and potentially reignite the bullish trend in crude oil prices. Conversely, an unexpected inventory build could suggest a demand slowdown, exacerbating concerns about an economic downturn, while investors remain cautious amid rising borrowing costs by the Fed.

Recalling the optimistic U.S. August ISM Manufacturing and Services PMI figures released yesterday, which are raising expectations for further rate hikes, as the U.S. economy may be gearing up for a soft landing rather than a sharp slowdown. In this scenario, safe-haven flows may temporarily exert pressure on commodities like crude oil unless an alternative economic catalyst challenges the Fed's tightening expectations.

Technical Analysis

WTI crude oil has been steadily rising since early July, forming a pattern of higher highs and higher lows. Additionally, in yesterday's trading session, the price surged to a new nine-month high of $87.55 before retracing some gains.

Current momentum indicators suggest that the recent rally may have been overextended. Both the relative strength index (RSI) and the stochastic oscillator are in overbought territory, while the price is trading near the upper Bollinger Band. Therefore, there is a potential for a downward correction.

However, the 100 SMA remains above the 200 SMA, indicating that the path of least resistance is still to the upside, and the uptrend may still have traction. The 100 SMA provides support near the $86.00 level, which could limit losses. In such a scenario, WTI crude oil may revisit its recent high of $87.55 and potentially set new highs.

And this expectation remains plausible. From the perspective of institutional trading logic, the fact that bulls are returning to the $85.50 level after testing the recent high of $87.55 (without creating new lows) suggests that the path of least resistance is still upward. Unless the price falls below $85.50 again, the psychological level of $90 is within reach for the bulls. Given the current developments, technical analysis is no longer the most important factor. In terms of trading strategy, buying the dips is recommended as the primary strategy.

Trading Recommendations

Trading Direction: Long

Entry Price: 86.00

Target Price: 90.50

Stop Loss: 84.30

Valid Until: 2023-09-21 23:55:00

Support: 85.50, 84.52, 84.28

Resistance: 87.55, 87.93, 89.29