Current Factors Influencing Current Crude Oil Prices:
- Oil prices were relatively stable on Thursday morning, with the market’s attention on global economic factors rather than Middle East issues. Brent prices were below $81/bbl at the start of February, fluctuating between $74/bbl and $79/bbl, with concerns about US oil production estimates.
- Traders were hopeful for increased demand in China during Lunar New Year, closely monitoring travel data despite bad weather affecting travel across the country. January saw a surge in retail sales of passenger cars by 57%, with Chinese consumers increasingly buying electric and plug-in hybrid vehicles.
- India remained a significant player in oil demand, with refined product sales rising by 8 % year-on-year in January. Diesel sales increased by 3%, and gasoline sales jumped by 9%. The IEA expected India’s demand to surpass China’s, reaching 6.6 million bpd by 2030.
- In the US, implied demand for gasoline averaged 8.28 million bpd over the past four weeks.
- Commercial oil stocks increased by 5.521 million bbl, while refinery utilization declined to around 82%.
Technical Analysis
Chart Overview and Price Action
The chart presents West Texas Intermediate (WTI) oil prices with various technical indicators and patterns that have formed over the recent trading period up to February 8, 2024. From the price action, we observe a trading environment characterized by volatility within a defined range, with price consolidations and retracements from key resistance levels.
Key Technical Observations:
- Price Consolidation: WTI has shown a consolidation pattern, fluctuating between support at around $67.978 and resistance near the $79.570 mark.
- Fibonacci Levels: The Fibonacci retracement levels, drawn from the swing high of $79.570 to a low of $67.978, indicate potential resistance and support levels. The price has recently tested the 0.786 retracement level at $78.346, suggesting a strong resistance zone.
- Trendlines: The chart shows lower highs, indicating a potential downtrend. However, the recent break above the short-term range line suggests a possible change in momentum.
- Volume Profile: The visible range volume profile highlights significant trading activity around the $70 – $75 price levels, which could act as a pivotal zone for future price movements.
- Momentum Indicators: The ATR indicates volatility has been relatively stable, while the momentum indicator shows a slight increase, aligning with the recent price uptick.
Fundamental Considerations:
Incorporating the current news and upcoming events:
- Global Economic Factors: Stability in oil prices suggests the market has partially priced in the global economic factors. The steady implied demand in the US and the increase in commercial oil stocks imply a balance between supply and demand.
- China’s Demand: The surge in retail sales of passenger cars in China, especially electric and plug-in hybrids, may slightly dampen the future oil demand growth, as these vehicles reduce the reliance on traditional fuels.
- India’s Oil Demand: India’s increasing demand, with refined product sales rising, supports a bullish scenario in the longer term, contributing positively to global oil consumption patterns.
- Refinery Utilization: The decline in refinery utilization to around 82% could lead to reduced supply, potentially supporting prices if demand remains constant.
Three Scenario Forecast:
Bullish Scenario (Fundamentals + Technicals):
- Fundamentals: Increasing demand from India, combined with stable US demand, overshadows the dampening effect of China’s shift towards electric vehicles.
- Technicals: Price breaks above the $76.500 resistance level and establishes a new higher high, targeting the next resistance at $79.231.
- Price Target: $78 – $80.
Bearish Scenario (Fundamentals + Technicals):
- Fundamentals: Higher US oil production estimates and increased commercial oil stocks could exert downward pressure on prices.
- Technicals: Failure to sustain above the short-term range line and a return below $73.678 could see prices test the support at $70.924.
- Price Target: $70 – $71.
Neutral Scenario (Fundamentals + Technicals):
- Fundamentals: Mixed signals from global markets, with Chinese demand uncertainty and steady US demand, keep prices within a range.
- Technicals: Price oscillates between the $74.500 and $76.500 levels, remaining within the current consolidation pattern.
- Price Target: $74 – $76.
Overall Market Sentiment:
Considering the technical analysis and fundamental factors, the market sentiment appears cautiously optimistic, with a tilt towards bullishness due to India’s strong demand signals. However, there is a significant bearish undertone given the potential for increased US production and the shift to electric vehicles in China. The sentiment is thus mixed with a positive bias.
Sentiment Percentage Breakdown:
- Positive: 55%
- Negative: 30%
- Neutral: 15%
This sentiment is contingent on the market’s interpretation of the US production data and the actual demand out of China post.
Price analysis and Targets:($72-$77)
The detailed analysis of West Texas Intermediate (WTI) oil prices, incorporating technical observations and fundamental considerations, lays the groundwork for a strategic approach to target the specified price ranges of $74-$77 and $72-$70. This strategy, inspired by an iterative and analytical framework, will navigate through the volatility and range-bound conditions highlighted in the analysis.
Strategy Overview
The strategy integrates the scenario forecasts and market sentiment, employing a mathematical approach to target the specific price ranges while managing risk and capitalizing on the market’s cautiously optimistic sentiment.
Strategy Details
Initial Condition and Framework:
- WTI oil’s price action is within a defined range, showing consolidation patterns and reacting to fundamental global economic factors. The analysis suggests a cautiously optimistic market sentiment, leaning slightly bullish but with significant bearish potential due to underlying factors such as US production and electric vehicle adoption in China.
Scenario Application:
- Bullish Target Zone ($74-$77): Given the slightly bullish market sentiment (55%), this zone is likely achievable under a scenario where demand factors, outweigh supply increases.
- Bearish Target Zone ($72-$70): This zone is considered under a 30% negative sentiment, driven by potential supply increases and dampened demand.
Entry Points and Trade Management
For the Bullish Zone ($74-$77):
- Entry Point: Look for a clear break above the consolidation pattern, particularly if prices sustain above the $74.5 mark, indicating a move towards the upper target range.
- Stop-Loss: Set stop-loss orders below the lower end of the bullish target zone or around $73.5 to mitigate risk.
- Profit Target: Aim for the upper end of the bullish zone, adjusting targets dynamically as prices approach $77, monitoring for any signs of reversal.
For the Bearish Zone ($72-$70):
- Entry Point: Initiate positions on signs of price weakness or failure to break above key resistance, particularly if prices fall below $72.5.
- Stop-Loss: Place stop-loss orders slightly above the entry point, around $73, to limit potential losses.
- Profit Target: Set targets within the $72-$70 range, closely watching market sentiment and fundamental indicators for shifts that could signal an exit.
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Disclaimer: This is not an Investment Advice. Investing and trading in currencies involve inherent risks. It’s essential to conduct thorough research and consider your risk tolerance before engaging in any financial activities.
