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Summary: Due to supply constraints from Saudi Arabia and Russia, the market continues to tighten, with WTI crude oil posting gains for the third consecutive week.

Fundamentals

Against the backdrop of supply restrictions by Saudi Arabia and Russia, the market continues to tighten, leading to the third consecutive weekly gain for WTI crude oil. Last Friday, WTI crude oil prices continued to rise after breaking through the $90 per barrel threshold for the first time on Thursday. Both the International Energy Agency (IEA) and OPEC warned last week that supply shortages are expected by the end of the year, driving crude oil prices up by nearly 4% since last Friday's close.

Furthermore, demand is also being supported by increasing signs, such as the possibility of the US avoiding an economic recession and the resilience of consumption in some Asian countries. Given the extent of OPEC+ production cuts, the crude oil market must now consider the possibility of WTI crude oil futures reaching $100 per barrel in the latter half of this year.

Major institutions predict that the oil market will remain in deficit for the remainder of the year, a situation that has already started to manifest in the spot crude oil market. The trading price of Azerbaijani crude oil is significantly higher than the benchmark price due to refinery purchases, partly because the trading price of fuels is far above that of crude oil, which is also a result of low inventories and healthy demand.

Institutions suggest not expecting an end to the upward trend in oil prices. Until recently, crude oil prices had been stuck in a wide range throughout the year. WTI crude oil breaking through $90 per barrel provides new technical momentum for price increases, supported by market fundamentals. The crude oil market is now firmly in OPEC's control, and the only factor that could reverse the upward pressure on oil prices will depend on when Saudi Arabia begins to unwind some of its voluntary production cuts.

Technical Analysis

WTI crude oil prices are currently in a very delicate balance, with any price correction potentially triggering another breakthrough of the highs. Despite the relative strength index (RSI) being deeply overbought, positive news flow and a further decrease in US inventories could support further price gains. Nevertheless, it is not expected to rapidly rise to $93.71 in the short term, as larger catalysts are needed to fuel an extended rally.

On the positive side, the bulls testing the top of the trading range from November last year at $93.71 is a level to watch. While this may seem achievable, it's important not to forget that the market has already priced in many potential supply shortages and bullish scenarios. However, if a breakthrough above $93.71 occurs, the next focus will be on $97.11, the high from August 2022.

On the downside, if the market is proven to be strong enough in this broad trading range, the potential for a correction would first test the triangle consolidation levels from the previous breakout and then revisit the crucial level of $84.30 dating back to August 10. If this level fails to hold, a significant decline may ensue, possibly taking oil prices to the critical bottom near $80.00.

Overall, considering both our technical analysis and fundamentals, it's not yet time to short crude oil. While the market is overbought, upward momentum has not been completely exhausted. In terms of trading strategy, it's recommended to continue buying the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 90.20

Target Price: 93.71

Stop Loss: 88.10

Valid Until: 2023-10-02 23:55:00

Support: 90.00, 89.03, 87.60

Resistance: 91.72, 92.50, 93.71