Please note that due to market volatility, some of the key levels may have already been reached and scenarios played out.

Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): The suggested stop from last week got triggered at $66.66. Now, we could see the prices auctioning down towards the $65.01-66.35 price area where we saw a number of price rejections in the past weeks (yellow rectangle). They may serve as new support for accumulation, in particular for those who want to bet on a fast recovery of the Chinese demand. In this scenario, the prices could eventually come to revisit May’s Volume Point of Control (VPOC) around $65.17. This could lead to a new rebound in that area, with a stop possibly placed at $64 and targets at $69.27 and $71 in order to keep a good risk/reward ratio.

Oil has just reached the lower side of its triangle pattern. Will this trend line support oil prices or will we see a pullback to the previous lows ?

Fundamental Aspects

The Chinese demand was impacted as a result of some provinces suffering badly from Delta. China’s July refinery output fell to its lowest since May 2020 as independent plants cut production amid weakening profits, high inventories, and tighter quotas.

On the other hand, we see a positive fuel consumption recovery in India in the first half of August:

• Gasoline sales indeed increased by 3.7% in that period compared to the same period of 2019 (pre-pandemic);
• Diesel sales which are down 8% in relation to August 2019 are improving compared to July (-11%).

This group of petroleum products accounts for more than half of all sales countrywide.

The dollar seems to be gaining traction, as CFTC’s net dollar positioning appears to be at its highest since March 2020.

Geopolitical Scene

The situation in the Middle East is on the radar. Two critical events were reported over the weekend. Fuel shortages happened in Lebanon due to the intensifying economic crisis, and the explosion of a truck full of petrol caused deaths and burnt people.

In Afghanistan, the Taliban are about to take over power in Kabul. This may lead to tensions and unrest in the region. The UN Security Council meeting is supposed to take place today.

Figure 1 - Brent (CL) Crude Oil Futures (Continuous contract)

In summary, oil prices are back at lower levels – forcing an exit at $66.66 today.

For the time being, crude looks well-positioned to continue higher given its technicals. However, we would like to see a confluence with a more favorable fundamental landscape to develop in Asia.

As always, we’ll keep you, our subscribers well-informed.

Thank you.

Sebastien Bischeri
Oil Trading Strategist