Chương 28 12/05 WTI: Buy Low and Sell High as the Bullish and Bearish Strengths Develop a Shift
Abstract: At the beginning of this week, WTI crude oil fell for the third consecutive day, because the USD strengthened and investors thought OPEC+ would not take action.
Fundamentals
Last week, OPEC+ countries, led by Saudi Arabia, collectively decided to drastically cut oil production by around 2.2 million barrels per day early next year. That said, oil prices reacted to the downside as the market was disappointed with the scale of the cuts and skeptical of further cuts in the future.
Saudi Arabia Energy Minister Abdulaziz bin Salman said OPEC+ oil production cuts could "absolutely" continue beyond the first quarter if needed. He said the cut of more than 2 million barrels per day announced last week, about half of which came from Saudi Arabia, would only be canceled after taking into account the market situation and would be phased out gradually.
WTI crude oil price is still lower than that before the OPEC+ meeting. Market observers pointed out that only about half of the production cuts were brand new, and questioned whether the promised production cuts would actually be fulfilled, so oil prices lacked new momentum. The Saudi Arabia Energy Minister's speech once drove the oil price to rise to US$74.18 in intraday trading on Monday, but the decline of WTI crude oil expanded to the bottom of the range of US$73.00, with a decrease of 0.7%.
On Tuesday, WTI crude oil continued to hover at the bottom of its range with no direction. If the commodity does not break below yesterday's new lows during the day, a bottoming structure within the range is expected.
WTI crude oil may get directional clues from the inventory data of the American Petroleum Institute and Energy Information Administration, and the re-increase in inventory may keep investors alert to the weak demand situation. After all, inflation is still high and growth is slowing down, which means that the energy demand is slowing down.
Top U.S. data releases this week could also influence risk sentiment and energy price action. An increase in employment data could affect the Fed's tightening expectations, although the Federal Open Market Committee has reiterated that they plan to keep policy unchanged for the time being.
Strong employment data may rekindle the hope of raising interest rates, which may be favorable for hedging USD and negative for crude oil & other commodities.
On the other hand, the weak employment data will once again confirm the Fed's plan of staying put, and may even stimulate the interest rate cut negotiations at the beginning of next year, which will lead to the loss of the USD with lower yield and risk preference capital flow.
Technical Analysis
WTI crude oil has been consolidating for close to a month between support around US$72.34 and resistance near US$79.67. Prices are currently testing support and could rebound to the top again.
Stochastic is falling but is approaching the oversold zone, suggesting that the bears are exhausted. A recovery means that the bulls are ready to take over. However, the Relative Strength Index still has more room to fall before indicating oversold conditions; therefore, bearish momentum is likely to continue.
Moreover, a break below support could trigger a drop to the same height as the range or around US$6. The 100 SMA appears to be falling below the 200 SMA, suggesting that the path of least resistance is to the downside. At the same time, crude oil is trading below both SMAs; therefore, these SMAs may remain at dynamic resistance levels. A bounce-off support could still touch the upper limit of these technical indicators, which is around US$76 per barrel. It is recommended to buy low and sell high.
Trading Recommendations
Trading direction: Short
Entry price: 73.30
Target price: 68.69
Stop loss: 74.78
Deadline: 2023-12-18 23:55:00
Support: 73.00, 72.37, 71.18
Resistance: 73.84, 75.07, 76.79
