Chương 47 09/19 WTI: Go Short at the Highs as Bears Appear to Be in A Sniper's Range
Abstract: The expectation that the Organization of Petroleum Exporting Countries (OPEC) will cut production again provides strong support for crude oil, because OPEC may be keen to support prices in the expectation of a global economic recession or soft landing.
Fundamentals
At present, WTI crude oil is heading for the top of the range of US$93.71, which is expected to continue the strong rally driven by the flexible demand and supply restrictions of OPEC+ core countries Saudi Arabia and Russia.
In recent trading days, while the oil price has risen, the spread of key time points has risen sharply, indicating that the market supply is insufficient and bullish options have become more expensive. The price of Brent crude oil has increased by about 10% this year because OPEC+ member countries have restricted production, the demand outlook has improved, and the U.S. may avoid economic recession. In this context, speculators pushed the net bullish bets on Brent crude oil and WTI crude oil to a 15-month high.
We have always believed that the oil market will be increasingly tense in the second half of 2023, and this tightening has now arrived. It seems only a matter of time before we see the oil price testing US$95.00 per barrel. At the same time, if the further rise in oil prices brings upward pressure on bond yields, it may adversely affect risk appetite.
We believe that the continuous rise in oil prices may increase inflationary pressure at the end of the year, which may lead to the deterioration of the global economic growth and inflation combination. The optimism of global economic growth is already high, and it is unlikely to heat up further. The option market thinks that the possibility of Brent crude oil prices staying above US$90.00 per barrel by January 2024 is 45%. Other strategists predict that OPEC+ is unlikely to pursue oil prices above US$100.00 per barrel, but they have noticed the short-term bullish risk brought by recent developments.
In other events, the decision to be made by the central bank this week may seriously affect market sentiment, because another round of interest rate hikes by the Federal Open Market Committee and the Bank of England (BOE) may make investors wary of rising borrowing costs. Conversely, as businesses and consumers cut back on spending activities, this may lead to a weakening demand for fuel and energy commodities.
API and EIA inventory data may also affect the trend of crude oil prices because these data will provide more insights into supply and demand. Reduced inventory can reassure investors that demand is still high; The increase in inventory may indicate that demand is slowing down or production can keep up with consumption, which may lead to a decline in crude oil prices.
Technical Analysis
WTI crude oil continued to gain bullish momentum on Tuesday, approaching the next potential ceiling of around US$92.50. If this resistance level holds, crude oil prices could fall to the previous inflection point around US$80.00.
However, the 100 SMA is attempting to form a bullish crossover with the 200 SMA in the 1D timeframe to confirm that the path of least resistance is to the upside. Crude Oil is also trading above both SMAs, further confirming the bullish pressure.
A break above the resistance level could mean a sharper rally for the commodity. However, the stochastic indicator is in the overbought zone, so selling pressure could make a comeback. The Relative Strength Index also suggests that the bulls are exhausted, which means that falling prices could confirm that the bears have officially taken over.
Finally, both oscillators have enough room for a significant retracement, so the price may follow the trend as bearish momentum comes into play. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 92.00
Target price: 87.50
Stop loss: 95.00
Deadline: 2023-10-03 23:55:00
Support: 89.78, 88.57, 87.67
Resistance: 91.72, 92.50, 93.71
