Chương 15 11/28 WTI: Buy Low and Sell High with Trading Risk Premium
Abstract: Due to the increase of non-OPEC+ countries' supply and the decline of the war risk premium between Israel and Hamas, WTI crude oil price has fallen by nearly one-fifth from the high level at the end of September. The International Energy Agency (IEA) predicted earlier this month that there will be a supply surplus in the market again next year.
Fundamentals
WTI crude oil price hovered above US$75.00 in during the European session on Tuesday, and it was still difficult to break through the range high, but it did not hit a new low. In the case of a bearish USD, the OPEC+ meeting to be held on Thursday will bring some support to crude oil prices. The meeting mainly focused on the possibility of OPEC+ extending crude oil production reduction in 2024.
The upcoming OPEC+ meeting is held against the background of a sharp drop in crude oil prices. Although OPEC+ continues to reduce production, crude oil prices are still depressed due to concerns about oversupply. The increase in production in non-OPEC countries (especially the U.S.) has increased the downward pressure on oil prices.
However, the decline in crude oil prices may support further increases in bond prices. At present, the price of crude oil is positively correlated with the yield of 10-year U.S. Treasury Securities. The cheaper the crude oil price, the lower the yield of 10-year U.S. Treasury Securities, because cheaper oil prices can curb inflation expectations and soften the Fed's support expectations.
The international crude oil price has fallen for the fifth consecutive day and remained at the level of US$75.00 this morning; According to reports, Saudi Arabia is calling on other members to reduce supply to have a major impact on the decline in oil prices, because it is obvious that Saudi Arabia's daily production reduction alone is not enough to stabilize oil prices. However, the appeal was resisted by some members.
Before OPEC and its allies held a meeting to decide the future production quota, hedge funds became increasingly pessimistic about crude oil, and both bulls and bears were waiting in ambush to buy or sell in response to the solution launched by OPEC+ on Thursday.
According to data from ICE Futures Europe and CFTC, in the week ending November 21, the fund manager reduced the net long position of Brent and WTI crude oil by 19,378 lots to 232,883 lots. This is the lowest level since the end of June. Only long positions decreased by 19,467 lots to the lowest level in the past seven months.
Oil prices have fallen sharply from the high level reached at the end of September, and the decline has been accelerated by the decline in liquidity. Sentiment in the crude oil market remains negative, with investors now largely on the sidelines as OPEC+ decides whether to extend supply constraints into next year or cut production further.
We believe that Saudi Arabia will extend this production reduction, and we see that the possibility of further production reduction is increasing. By doing so, the Group will be well-positioned to support the market ushering into 2024.
Finally, traders will watch closely the API weekly crude oil inventories in the week ending November 24, and EIA crude oil inventory changes in this period on Wednesday. The purchasing managers' index (PMI) data released by China on Thursday has potential significance. As the world's largest importer of crude oil, China's better-than-expected data may positively impact WTI prices.
Technical Analysis
Looking at the range-trading structure, the current crude oil price seems to have ended its downturn. However, price pressures are intensifying ahead of Thursday's OPEC+ decision.
On the bright side, the US$77.00 level is a resistance level worth keeping an eye on. If crude oil can break through such a level again, bulls are expected to test the US$80.00 level to promote some selling pressure or short-term profit-taking. If the oil price can consolidate above this level, then the market may play a role in the return of strong resistance of US$85.00.
On the downside, a soft bottom is forming around US$74.00. This level is the last line of defense before the price enters the level of US$70.00 and below. Below it, investors need to pay attention to the level of US$67.00, which is a triple bottom since June, as the next trading support level.
Overall, as part of the range trading, prices are not out of the trading range at the moment. It is recommended to follow yesterday's strategy, namely, buy low and sell high.
Trading Recommendations
Trading direction: Long
Entry price: 75.50
Target price: 77.93
Stop loss: 72.37
Deadline: 2023-12-12 23:55:00
Support: 74.08, 73.33, 72.36
Resistance: 78.42, 79.64, 80.85
