Price Retracement Without Breaking the Targets Means Recovery Momentum Officially Kicks Off

Russia-Ukraine Conflict

Commodity

Summary:

The IEA said oil prices could rise next year as western sanctions squeeze Russia's oil supply and market demand exceeds expectations. The risks remain until the FOMC meeting. The sell-off triggered by worries about the recession may have been halted after two consecutive months of data indicating that U.S. inflation has cooled.

BUY WTI

Close Time

CLOSED

73.500

Entry Price

83.420

70.000

59.986 +0.177 +0.30%

61.4

Pips

Profit

70.000

74.114

Exit Price

73.500

Entry Price

83.420

Fundamentals

The IEA monthly report shows that Russia's crude oil production is expected to plunge 14% by the end of Q1 of next year. If this forecast is true, it will reverse the recent trend of crude oil futures. The IEA said that while the drop in oil prices was welcome news for consumers facing soaring inflation, the full impact of the embargo on Russian crude oil and product supplies remained to be seen. As the market gets through the winter, it is expected that the crude oil revenue and expenditure will tend to shrink in Q2 of next year, and the possibility of price increase again is not excluded.

Meanwhile, Goldman Sachs lowered its average Brent crude oil price forecast for Q1 and Q2 of next year from US$110 to US$90 and US$95 respectively; the WTI crude oil price forecast was lowered from US$105 to US$95 and US$89, respectively, over the same period.

Goldman Sachs noted that timing spreads and significantly weaker physical markets weakened the bullish positions traders had been pursuing before the embargo on Russian crude exports officially took effect. Over the past month, oil prices have built bull positions of more than 1 million barrels per day, which is contrary to seasonal trends. Goldman Sachs said, however, that the current weak performance is temporary and that the structural cycle in oil prices has come to an end this year.

The US Dollar Index (USDX) fell more than 1% after the latest CPI data showed better than expected, pushing commodities higher across the board, with crude oil and natural gas once up more than 4% and 8%, respectively. Wall Street was "very satisfied" with the headline inflation rate of 7.1% and the core inflation rate of 6.0%. In this report, the inflation rate is still as high as 77%. But as PPI was higher than expected last week, the market was prepared for a stronger figure, but it did drop a lot (7.1%).

Crude oil and other commodities may get more clues from the FOMC's decision later today as many expect the Fed to shift to a less hawkish stance. The FOMC may raise interest rates by 50 basis points to prevent inflation, but a higher rate hike could mean some room for the dollar to rise.

Finally, the updated economic forecasts could also pave the way for monetary policy expectations, as the (forward-looking guidance) upgrade will lead to higher projections of future borrowing costs. On the other hand, the downgrade would indicate that the Fed's austerity measures are taking effect, and they would soon suspend interest rate hikes (thus boosting commodity prices).

WTI: Price Retracement Without Breaking the Targets Means Recovery Momentum Officially Kicks Off_1

Technical Analysis

WTI crude might be ready to resume its downward trend soon as the commodity approaches strong resistance and technical indicators indicate that the decline will continue.

At present, bulls are interested in testing the 61.8% Fibonacci pullback and the channel resistance of US$78, which is the bottom line of the bearish pullback. If the rally is contained, crude oil prices will continue to fall near the bottom low of US$70.22 but will not fall below the new low.

A 100 SMA below the 200 SMA indicates that the path of least resistance remains to the downside, or that the ceiling (US$78.00) is more likely to hold rather than break. The 100 SMA is even aligned with the top of the channel to increase its strength as a ceiling.

But momentum remains strong after three straight days of rallying since the price tested the bottom at US$70.22, and the RSI has more upside before reaching the overbought zone; therefore, the adjustment could continue until the oscillators reflect exhaustion of the bulls.

Overall, oil prices are still in the process of recovery, and short-term resistance seems to be close at hand. It is recommended not to follow the uptrend but to go long at the lows in the event of structural retracement.

Trading Recommendations

Trading direction: Long

Entry price: 73.50

Target price: 83.42

Stop loss: 70.00

Deadline: 2022-12-28 23:55:00

Support: 74.94, 73.27, 70.24

Resistance: 77.05, 77.95, 82.72

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Risk Disclosure

The risk of loss in trading financial instruments such as stocks, FX, commodities, futures, bonds, ETFs and crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No decision to invest should be made without thoroughly conducting due diligence by yourself or consulting with your financial advisors. Our web content might not suit you since we don't know your financial conditions and investment needs. Our financial information might have latency or contain inaccuracy, so you should be fully responsible for any of your trading and investment decisions. The company will not be responsible for your capital loss.

Without getting permission from the website, you are not allowed to copy the website's graphics, texts, or trademarks. Intellectual property rights in the content or data incorporated into this website belong to its providers and exchange merchants.

Recent Searches

Top Searches

Markets

News

Analysis

User

24/7

Economic Calendar

Education

Data