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Fundamentals

During the Asian session on Friday (July 7), WTI crude oil fluctuated in a narrow range and is currently trading around $72.2/barrel. Oil prices slid sharply yesterday near the European and American sessions, with US crude oil dropping as low as around 70.2. After that, prices formed a V-shaped rebound and completely recovered losses. According to EIA data released later, US crude inventories fell more than expected last week, which has consolidated the rebound in oil prices again and ignored the impact of high expectations of rates hiking. Since the market is now mainly weighing between tighter crude oil supply and the increased possibility of US rates hiking, the volatility is more obvious. For one thing, Saudi Arabia and Russia, the largest oil exporters, announced a new round of production cuts in August. The total production cuts have now exceeded 5 million b/d, equivalent to 5% of global oil production, leading to a tighter supply after entering July. For another, the US overnight employment data is better than expected and also rendered the market believe that the Fed's July rates hiking is basically a certainty. As time goes by, rate hike expectations will gradually be settled, and supply and demand will become the only focus for trading.

Inventories: US EIA crude inventories fell by 1.508 million barrels in the week to June 30. EIA strategic petroleum reserve inventories fell by 1.458 million barrels. US domestic crude oil production increased by 0.2 million barrels to 12.400 million b/d. EIA gasoline inventories decreased by 2.55 million barrels, and EIA refined oil inventories reduced by 1.045 million barrels.

Data: ADP employment in June was 497,000, with an expected 228,000. US jobless claims last week were 248,000, with an expected 245,000.

News: Saudi Arabia raised most crude prices for Asian customers in August, which is the second consecutive rise. Earlier, the country announced the extension of voluntary production cuts on top of the broader OPEC+ agreement. Saudi Aramco said in a statement that the official selling price (OSP) of the August shipment of Arab light oil to Asia will be $0.20 per barrel higher than in July, while the Oman/Dubai quotation will be raised by $3.20 per barrel.

Investors need to pay attention to the upcoming US non-farm payrolls this session.

Technical Analysis

Trading at the daily timeframe, US crude oil fluctuated broadly yesterday, testing the 72.2 resistance line above and the support of the 70.0 line below, with the daily chart closing a long lower shadow. US oil rebounded continuously from the end of June, touching MA60 pressure above. The correction is also technically needed, and lower retracement lows last night were also around MA10 and MA20. The sharp downside yesterday also largely suggests that the bulls' momentum has not been sufficiently accumulated. Therefore, even in the case of favorable data, US oil still faces the technical need for further digestion and recovery. Under the resistance of MA60, even if the price breaks upward in the short term, the upper space is limited. After the price retraces to release risks, the next round of rallies will be smoother. The initial support lies in the MA5 at 71.5, and further support lies in the MA10 at 70.5.  

Investors are advised to go long after the price retracement! And we should wait patiently for the signal from tonight's non-farm payrolls. After the correction in oil prices, traders can take long positions in the short term depending on the support level. If the price falls back to the 70.5 line again, you can try long with small positions. The stop loss is set at 69.5, and the first target of taking profit is 72.5. After setting positions to break even, the second target lies could see at 74.

Trading Recommendations

Trading Direction: Long

Entry Price: 70.500

Target Price: 72.500

Stop Loss: 69.500

Support: 70.500/67.500

Resistance: 72.500/74.000