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Abstract: WTI crude oil traded below the threshold of US$89.00 on Wednesday. After OPEC+ predicted the surge in oil demand, WTI crude oil price climbed to the highest level in 10 months.

Fundamentals

After OPEC+ predicted that production cuts would tighten the market in the next few months, oil prices stabilized after rising to a 10-month high. WTI crude oil once exceeded US$89 a barrel today. OPEC+ data reinforces the constructive view on crude oil, as the market will tighten supply for the rest of this year. However, some major consumer countries will be worried about rising prices.

The optimistic outlook provides more impetus for the rebound of oil prices that has been going on since mid-June. Because Saudi Arabia and Russia have limited supply, at the same time, the demand in the U.S. and some Asian countries has proved to be relatively elastic. Today, the monthly report released by the International Energy Agency (IEA) provides more clues for the market.

Toril Bosoni, head of the Oil Industry and Markets Division of the International Energy Agency (IEA), said that it can be said that the price limit has achieved results, but now the price has exceeded the upper limit. We have not only seen the peak of crude oil demand but also the peak in decades. By the end of 2030, we will see the peak demand for fossil fuels, including natural gas, coal, and oil. It remains to be seen whether Russia can continue to sell crude oil to the market.

According to data from the International Energy Agency (IEA), Russia's oil export revenue rose to the highest level in 10 months in August, as higher prices offset the country's lower shipments. In its monthly report, the agency said that Russia earned US$17.1 billion from crude oil and petroleum products supplied overseas last month, which was US$1.8 billion more than that in July. This is also about US$2.6 billion higher than this year's monthly average.

Due to the weakening of the ruble, the USD equivalent capital flowing into the Russian treasury in August increased by 26% compared with that in July, but it still decreased by nearly one-third compared with the same period last year. Last month's increase in export revenue indicates that Russia's tax revenue will further increase in September.

The head of the Oil Industry and Markets Division of the International Energy Agency (IEA) said that the current crude oil price is still lower than last year, just after the conflict between Russia and Ukraine. However, since the interest rate is very high now, the central bank is considering how to alleviate the impact of high oil prices and energy prices, which is obviously an important consideration.

Other aspects: The just-released U.S. CPI report in August shows that inflation is rising, which is undoubtedly disappointing for the Fed. After all, rising inflation may encourage the Fed to raise interest rates to increase borrowing costs, which in turn may curb the demand for commodities such as energy.

The inventory report to be released by EIA later may also affect the trend of crude oil because these reports provide insights into the supply and demand situation. Large-scale inventory reduction can reassure investors that even if the risk of economic recession or "soft landing" is imminent, consumption is still high and demand may remain strong.

Technical Analysis

WTI crude oil broke through the rising triangle resistance level, which laid the foundation for the rebound at the same height as the pattern. However, as the just-released U.S. CPI report in August shows that inflation is rising, and the hope of further price increases shows signs of stagnation, there may still be a pullback. But even so, the upward trend is still intact.

The Fibonacci retracement tool shows more buyers waiting to buy. 38.2% Fibonacci retracement level is at US$88.51 and 50% Fibonacci level is at US$88.26. A larger pullback could reach the 61.8% Fibonacci level, which is in line with the triangle resistance around US$88.00. If any of these levels can act as support, crude oil prices could resume their rally to oscillating highs of US$89.30 or higher.

The 100 SMA sits above the 200 SMA, indicating that the path of least resistance is to the upside, or that support is more likely to hold rather than be broken down.

However, the Relative Strength Index has been showing overbought conditions for some time now, so the move lower means that bearish momentum may need to return. Stochastic, on the other hand, has already started to fall, so crude oil prices may follow suit as bears prevail in the short-term timeframe. However, the rally could still resume once both oscillators have reached the oversold zone. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 87.60

Target price: 90.90

Stop loss: 84.20

Deadline: 2023-09-27 23:55:00

Support: 86.89, 86.52, 86.22, 85.63

Resistance: 87.33, 88.43, 90.24, 90.90