Chương 7 11/21 WTI: Set the Foundation as the Rhythm of Rise and Fall Has Been Destroyed
Abstract: The crude oil market now faces significant risks as OPEC+ ministers meet this weekend. If more and longer production cuts are announced at the OPEC+ meeting, oil prices could rebound to US$84.00.
Fundamentals
According to the data of the Chicago Mercantile Exchange (CME), the positions of traders in the crude oil options market show that the possibility of OPEC+ deciding to further reduce production at the upcoming meeting is more than 53%, while the possibility of maintaining the existing production reduction plan is about 40%. OPEC leader Saudi Arabia will extend the agreement to cut production by 1 million barrels a day to the expectation of early next year, which has helped support the crude oil price that plummeted earlier this month. Speculation about whether Saudi Arabia and its allies will choose to cut production further will remain widespread until the OPEC meeting on November 26.
In our view, while OPEC is likely to stick to its current production cuts at its upcoming meeting to keep the bottom line in crude prices, there is still room for further production cuts. If further cuts are sought, Saudi Arabia may try to get additional voluntary adjustments from other individual producers to allow members to "share the burden".
In addition, the price below US$80.00 belongs to the neutral lower level for WTI crude oil. Based on the forecast of the daily crude oil inventory deficit of 300,000 barrels in the fourth quarter, the average price of WTI crude oil in the fourth quarter may reach US$85.00 per barrel and may rise to US$88.00 per barrel in the rest of this quarter. The possibility of further tightening of Iran's sanctions and the limited new investment plan in Venezuela so far have supported the Brent crude oil price.
However, at this weekend's meeting, OPEC is likely to deepen its production reduction policy, and we don't want to gamble with OPEC. If the daily supply in the first quarter of next year is reduced by 1 million barrels, it will easily lead to the WTI crude oil price rising to US$90.00 per barrel.
Geopolitically, Iran is likely to respond to tougher sanctions imposed by the U.S., and "Iranian agents" can undermine maritime transportation, especially Houthi armed forces. Although many people regard the conflict between Palestine and Israel as background noise, the bank believes that the "awakening risk" brought by the conflict is still high.
Technical Analysis
Although WTI crude is still in sell-off mode, the sharp price rally in the last two sessions has disrupted the market's falling rhythm, leaving the market in a state of bull-and-bear disorganization.
The Fibonacci retracement tool shows additional levels at which bears may want to go short. 38.2% Fibonacci retracement is located near US$79.14, which is also close to the 4h 200 SMA dynamic inflection point.
A larger adjustment could reach the 50% level at US$81.19 or the 61.8% Fibonacci level at US$83.24. If either of these factors becomes the resistance, WTI crude could resume its downtrend to fluctuation lows of US$72.49 or lower.
Please note that the span of the head-and-shoulders pattern is about US$10; therefore, the resulting sell-off could last for the same height.
However, the 100 SMA lies above the 200 SMA, so the path of least resistance remains to the upside. In other words, the uptrend is likely to resume.
In addition, the stochastic indicator is moving higher after dropping to the oversold zone, suggesting that bullish momentum is starting to build. The oscillator has a lot of room to rise before reflecting the exhaustion of bulls; therefore, the price could follow suit.
However, the Relative Strength Index looks poised to rise after hovering near the oversold zone, which also suggests that upside pressure may return. In this way, the adjustment could continue until the oscillator reaches the overbought zone. It is recommended to set the foundation.
Trading Recommendations
Trading direction: Long
Entry price: 75.50
Target price: 79.90
Stop loss: 72.37
Deadline: 2023-12-05 23:55:00
Support: 77.16, 75.97, 74.94
Resistance: 78.42, 79.64, 80.85
