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Risk Premium Persists, Although at a Negligible Level
Summary:
Oil falls to two-week low as Israel agrees to Trump's ceasefire offer.
CLOSED
64.932
ENTRY
60.420
TGT
67.950
SL
65.003 +0.625 +0.97%
165
Points
Profit
60.420
TGT
64.767
CLOSING
64.932
ENTRY
67.950
SL
Fundamentals
The recent agreement by Israel to the Trump-brokered ceasefire proposal with Iran has alleviated concerns regarding potential disruptions to Middle Eastern crude oil supplies, causing oil prices to fall to a two-week low. Although a risk premium remained embedded in crude oil prices, it has largely dissipated. If the ceasefire agreement is observed as announced, investors may anticipate a normalization of oil prices.
Looking ahead, the evolving situation in the Middle East continues to drive volatility in crude oil prices, with investors likely to monitor geopolitical developments for cues. Signs of de-escalation could trigger further profit-taking on prior gains, while an escalation of tensions could prompt a fresh rally in oil prices due to global supply concerns.
Furthermore, inventory data may also induce short-term fluctuations, with the API report indicating another substantial draw in inventories, leading traders to position themselves for a similar outcome from the EIA report.
Technical Analysis
Technically, the overnight sell-off in WTI crude oil prices reinforced the resistance zone between approximately US$78.45 and US$80.77 (year-to-date highs). It is evident that a breakout above this resistance zone will be challenging for crude oil.
WTI crude oil prices have retraced significantly from recent highs near US$76.71 and are currently trading around US$64.27. A death cross appears imminent as the 100-day SMA approaches the 200-day SMA from above.
This decline marks a notable reversal of the prior strong uptrend, indicating that profit-taking and bearish sentiment are weighing on prices. However, prices are testing a favorable area that could attract buyers and drive a resumption of the uptrend towards the next bullish target.
Based on Fibonacci extensions, WTI crude oil may retrace to the 38.2% level (US$70.93), but failed to provide sufficient support, subsequently rising to the 50% level (US$73.03). Sustained bullish momentum could drive it up to the 61.8% level (US$75.13), followed by the 76.4% level (US$77.73). The ultimate extension is at US$81.94 per barrel, assuming a favorable scenario.
However, technical indicators paint an increasingly bearish picture. The stochastic oscillator has plummeted from the overbought territory and is now approaching oversold conditions, suggesting potential continued selling pressure in the short term. Nevertheless, the rapid decline of the oscillator also indicates a possible rebound in the near term once extreme oversold levels are reached.
Similarly, the Relative Strength Index (RSI) has also declined significantly from its highs and is currently trending towards the oversold zone. The rapid weakening of momentum suggests that bears have firmly grasped control of the market, but the indicator's proximity to oversold conditions may signal an impending rebound.
Indeed, given that the 1D structure remains in a death cross, it is recommended to continue to go short at the highs.
Trading Recommendations
Trading Direction: Sell
Entry Price: 64.80
Target Price: 60.42
Stop Loss: 67.95
Valid Until: July 10, 2025 23:55:00
Support: 63.68, 62.70, 60.58
Resistance: 65.29, 66.90, 67.84
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You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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