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Summary: On Wednesday, WTI crude oil dipped below $70 as investors expressed concerns about China's slowing demand for crude and the effectiveness of OPEC+ voluntary production cuts, marking its lowest level since July.

Fundamentals

WTI crude oil faced significant selling pressure on Wednesday, with bears leading for the seventh consecutive week, pushing the weekly decline to a four-month low of $69.28. Speculation is growing about a bullish correction occurring soon, as the RSI and stochastic oscillator are seeking an upward reversal near oversold levels. Additionally, the market trend is developing below the lower Bollinger Band, suggesting that the recent decline may be somewhat excessive.

Several key factors drove this sell-off. Primary concerns revolved around disruptions in energy market demand, highlighted by a larger-than-expected increase in US gasoline inventories as reported by the Energy Information Administration (EIA).

Despite the EIA reporting a 4.8 million-barrel decrease in overall inventories, with an expected reduction of 1.3 million barrels in consumption, WTI crude oil remains weak. This represents an improvement in demand compared to the previous reduction of 1.6 million barrels, indicating some demand recovery.

Persistent concerns about the health of the Chinese economy have also intensified bearish sentiment in the oil market. Moody's downgrade of China's A1 rating outlook from stable to negative added to these worries. Doubts about the effectiveness of OPEC+ production cuts played a role as well. Despite reassurances from the Saudi energy minister and the Russian deputy prime minister this week that they might extend or even deepen the promised production cuts, these assurances were disregarded.

Safe-haven flows appear to be at play ahead of Friday's release of nonfarm payroll data, as leading employment indicators suggest a stronger hiring situation this month. The market currently expects an increase of 179,000 jobs compared to the previous 150,000, with the unemployment rate expected to remain steady at 3.9%, and the average hourly earnings year-on-year rate decreasing from 4.1% to 3.9%. The market presently anticipates the data will not be "soft enough to prove an imminent rate cut."

Technical Analysis

WTI crude oil broke below the short-term range support of around $72.50 overnight, descending to the $69.00 range. The price appears poised for a rebound from this level towards areas of interest.

The Fibonacci retracement tool indicates levels where bears might join the market. The 38.2% Fibonacci retracement aligns with the previous support level at $73.00, while the 50% Fibonacci retracement sits at $74.35. A more substantial retracement could reach the 61.8% Fibonacci level at $75.60, close to the dynamic inflection point of the 100 SMA.

In terms of moving averages, the 100 SMA below the 200 SMA suggests the path of least resistance is downward, making selling more likely. However, the gap between the indicators seems to be narrowing, indicating a weakening selling pressure.

The stochastic oscillator has been oversold for an extended period, signaling exhaustion among the bears. A move higher would suggest a return of bullish momentum, potentially allowing for a rebound.

The RSI is also in oversold territory, reflecting bearish fatigue. Meanwhile, the oscillators have significant upside potential before reflecting overbought conditions. With bullish momentum still present, the price may follow suit. In terms of trading strategy, buying on dips is recommended.

Trading Recommendations

Trading Direction: Long

Entry Price: 69.50

Target Price: 75.60

Stop Loss: 65.80

Valid Until: 2023-12-18 23:55:00

Support: 70.17, 68.35, 66.93

Resistance: 70.18, 72.39, 73.69