In the past two weeks WTI’s price was on the rise and the commodity seems to be enjoying some support from its fundamentals as the price action is currently just above $120 per barrel. The supply side for the commodity, seems to remain tight and currently production levels are raised at a very slow pace. It’s characteristic that last week, in its 29th OPEC and non-OPEC ministerial meeting, members of the oil production block decided to raise production levels only by 432k barrels per day (bpd) for July, practically reaffirming their production adjustment plan. Yet we must note that supply chains for oil seem strained, while reports tend to mention that full production capacity levels are nearing for countries such as Saudi Arabia, which tends to intensify market worries for the supply side of the commodity.
On the demand side the reopening of China, given that lockdown measures are lifted, provided grounds for higher demand expectations to surface. It should be noted that China’s trade data for May tended to reinforce for the awakening of China’s manufacturing sector, given that the import growth rate accelerated beyond the market’s expectations and the trade surplus still widened substantially. A note of warning though for China, should also be mentioned as parts of the key port of Shanghai have started reimposing lockdown measures, creating worries for another strict zero COVID cases policy from China, which could have an adverse effect on the demand side of the oil market.
The situation on the ground for the US oil market on the other hand seems to allow for some doubt as there seems to be a slack. It’s characteristic that the number of active oil rigs in the US seems to have paused at the number of 574, according to a report by Baker Hughes. Also the American Petroleum Institute reported that oil reserves unexpectedly risen by 1.8 million barrels in contrast to the respective drawdown which was expected by the market. For the same period the Energy Information Administration office showed also a rise of oil inventories for the same period, this time even higher, specifically 2.025 million barrels, once again in contrast to market expectations for a 1.9 million barrels drawdown.
Technical Analysis
On a technical level, we note that WTI’s price was on the rise yesterday testing the 121.25 (R1) resistance line. We tend to maintain a bullish outlook for the commodity as long as it remains above the upward trendline incepted since the 11th of May. Please note though that he RSI indicator is above the reading of 50 which may also imply some bullish tendencies for the commodity yet seems to have a slight downward slope, reflecting the correction lower of the price action after hitting the 121.25 (R1) level. Also note that the price action corrected lower after breaking for a brief period the upper Bollinger band. Should the bulls maintain control over the commodity’s price, we may see it breaking the 121.25 (R1) resistance line and aim for the 126.50 (R2) resistance level, which is also a record high for WTI prices. Higher than that we have also noted the 132.00 (R3) resistance level as a possible target for the bulls should their appetite be substantial. On the flip side and should the bears take over, we may see WTI’s price reversing course, breaking the prementioned upward trendline as a sign of a changing trend, break also the 116.00 (S1) support line and aim if not breach the 110.30 (S2) support level. Even lower and as an ultimate target for the bears we note the 103.00 (S3) support barrier.
- Support: 116.00 (S1), 110.30 (S2), 103.00 (S3)
- Resistance: 121.25 (R1), 126.50 (R2), 132.00 (R3)
