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Summary: Over the weekend, China's economic data revealed concerning trends as the November CPI further dipped into negative territory, signaling the country's most severe deflationary period in three years and increasing downward pressure on crude oil prices.

Fundamentals

In the pre-New York opening session, WTI crude oil retraced some of its intraday gains, struggling to sustain the momentum from the third consecutive trading day of upward movement. During the Monday European session, it dipped to $71.00, marking a 0.58% intraday decline.

WTI crude oil rebounded after touching the bottom of the 5- to 6-month range last week, demonstrating some resilience in structural trends. Additionally, robust US employment data on Friday played a crucial role, providing positive momentum for the world's largest energy consumer amid a strong labor market.

Simultaneously, the recent decline in oil prices prompted increased demand in the US, with the country initiating the purchase of 3 million barrels of crude oil for the Strategic Petroleum Reserve (SPR), scheduled for delivery by March 2024.

Furthermore, concerns about deflation in another major oil-consuming country (China) and disappointing Consumer Price Index (CPI) and Producer Price Index (PPI) figures have added to downward pressure on crude oil prices. The November CPI further dipped into negative territory, marking China's most severe deflationary period in three years and intensifying the downward pressure on crude oil prices. The latest data indicates that China's crude oil imports in November dropped to a four-month low, reflecting high inventories and sluggish crude oil demand.

WTI crude oil may glean clues from inventory data released by the American Petroleum Institute (API) or the Energy Information Administration (EIA), as an increase in inventories could indicate soft demand or rising supply levels, potentially leading to a decline in oil prices.

On the other hand, a decrease in inventories may suggest continued support for energy demand in the market, potentially maintaining strength in the coming weeks, which could favor crude oil.

Finally, a return of risk aversion could also imply a decline in oil prices, especially considering traders' expectations that the Fed may tighten policy further early next year. Expectations of unchanged or even lower interest rates may signal a rise in risk assets, including commodities like crude oil.

Technical Analysis

WTI crude oil bulls are currently in the process of testing resistance around $72.50, marking a correction. The Fibonacci retracement tool indicates that this resistance aligns with the 38.2% level.

This resistance is sufficient to potentially lead crude oil prices back down to the swing low of around $68.83. A more significant adjustment could target the 50% level at $72.24, near the 100 SMA dynamic turning point, or the 61.8% Fibonacci level at $75.51.

In terms of moving averages, the 100 SMA being below the 200 SMA suggests that the path of least resistance is to the downside, making it more likely for resistance to hold rather than be breached.

The stochastic oscillator has some room to rise before reflecting overbought conditions. Therefore, the bulls may remain in control until the bears are ready to take over. The RSI has more space to fill on the upside during the upward movement. Hence, bullish pressure may persist until overbought conditions are met. In terms of trading strategy, it is recommended to buy low and sell high.

Trading Recommendations

Trading Direction: Short

Entry Price: 72.50

Target Price: 68.50

Stop Loss: 74.30

Valid Until: 2023-12-25 23:55:00

Support: 70.54, 69.91, 68.99

Resistance: 71.95, 72.50, 72.75