Bulls still in control

Oil prices continued their ascent, with the bullish sentiment continuing, as this week nears its close, yet there seem to be some early signs of a stabilisation of oil prices. In this report, we aim to shed light on the factors driving WTI’s price, assess its future outlook and conclude with a technical analysis.

The US oil market

We make a start with the latest data concerning the US oil market. Beginning with the weekly API crude oil inventories figure which showed a build-up of over 1.3 million barrels, if compared to the drawdown of -0.797 million barrels the week before, one could argue that the US oil market has eased and presents a slack. Yet the EIA weekly crude oil inventories figure showed another contraction of oil inventories near -0.6 million barrels roughly the same as last week’s -0.708 million barrels, implying that the US oil market remains tight.

Overall the US oil inventories data tended to show a mixed picture indicative of the situation yet please note that the number of active oil rigs in the US seems to continue to fall implying a weaker demand side of the US oil market to which the production side reacts by shutting down rigs.

OPEC’s tightness and Russia’s exports

We should note though that there seem to be substantial worries in the market for the lowering of oil production levels by OPEC. Nevertheless, we would like to note the UAE Energy Minister Suhail al-Mazrouei’s comment at the end of last week that what OPEC does is considered to be sufficient. We perceive the statement as an expression of confidence on behalf of the Organisation that the production cuts of OPEC member states are working and are expected to ultimately push oil prices higher. Yet we maintain our doubts as within the organisation the disparity of the production cuts is wide and tends to weigh on Saudi Arabia.

It’s characteristic that IMF downgraded expectations of growth for Saudi Arabia from 3.2% to 1.9% taking into account also “production cuts announced in April and June in line with an agreement through OPEC+.” The fact that the Saudi Kingdom is practically delivering the highest production cuts may have been one of the determining factors behind the downgrading and may also have had a detrimental effect on the good relations and terms of OPEC+ members, undermining the production cut policy. For the time being and as production cuts are still in full force, we expect them to play a positive role in oil prices.

On the flip side, reports are surfacing that Russian oil exports are on the rise despite sanctions set by Western allies. It’s characteristic that Reuters reported that “obscure traders” are increasing their shipments of oil to India and China. Cargos may be switching owners and tankers while at sea practically making any enforcement of the sanctions more difficult. Should the headlines continue to multiply of such practices we may see market worries for the supply side easing somewhat and thus weighing on oil prices.

China’s demand

We conclude with a small comment regarding the demand side of the oil market and specifically China’s demand for oil. Overall despite the financial data displaying the difficulties that the recovery of the Chinese economy is facing, the pledge of Chinese leaders to intensify efforts for an increase of private investment and the recovery of the Chinese economy seems to have spurred market hopes for a recovery also of its oil demand and thus greater demand on a global level for the commodity. Should such expectations continue to be present we may see oil prices rising while an intensification of worries for the Chinese economic outlook may weigh on oil prices. We highlight the release of China’s manufacturing PMI figures for July next week, as another test regarding the Chinese economy which may have an impact on oil prices.

技术分析

WTI Cash 4H Chart

• Support: 79.00 (S1), 76.70 (S2), 74.60 (S3)
• Resistance: 81.25 (R1), 83.35 (R2), 86.70 (R3)

WTI’s price continued to rise and is currently struggling with the 79.00 (S1) support line, maybe edging a bit higher. We tend to maintain a bullish outlook for WTI’s prices as long as the upward trendline, guiding the commodity’s price since the 28th of June, remains intact. Furthermore, we note that the RSI indicator is rising and aiming for a reading of 70, underscoring the market’s bullish sentiment for the commodity.

On the other hand, we note that WTI’s price seems to have some difficulties clearly breaking the 79.00 (S1) support line and preferred to rotate around the level for the past twenty-four hours allowing for some ambiguity to emerge. Should the bulls maintain control as expected we may see WTI’s price aiming if not breaking the 81.25 (R1) resistance line, with the next target for the bulls being set at the 83.35 (R2) resistance base. Should the bears take over, we may see the pair breaking the 79.00 (S1) support line clearly, breaking also the prementioned upward trendline, signalling the interruption of the upward movement and aiming for the 76.70 (S2) support barrier, a level, that used to be a resistance line, yet as the price action has moved higher has now reversed its role.

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