Will crude oil breaks through as rate hikes come to an end?

The fundamentals of the oil market remains mixed, and there doesn't seem to be a strong one-sided trend. The recent rise in crude oil prices can be explained as a fluctuation from the low levels.

Why did crude oil experience a bottom bounce?

This is because low oil prices were stimulated by three major factors, leading to consecutive two weeks of price increases and breaking through the long-term downtrend and the MA 200 (moving average 200).

1. OPEC+ continued production cuts.

2. The rate hike is coming to an end after July FOMC.

3. An important meeting in China that opened up possibilities for future economic growth.

During the June OPEC+ meeting, Saudi Arabia voluntarily cut an additional 1 million barrels per day, which was a rare and significant reduction, the largest in years.

The IEF Secretary-General also mentioned that

due to expected supply constraints meeting demand, oil prices are expected to rise in the second half of this year.

China's policy-driven initiatives have provided greater imagination space for future economic growth, refocusing attention on the growth of crude oil demand.

The Importance of FOMC Meetings - CMS Prime

As the rate hike is coming to an end, crude oil is first major commodity to break through.

But will the upward trend in crude oil continue?

I’m not sure.

On the one hand, from a price perspective, the last time it broke through the price channel, prices were quickly sold off and fell back.

On the other hand, from a fundamental perspective, sustaining production cuts might be challenging.

Regarding the future outlook for crude oil demand, there is no consensus among research institutions worldwide. Many institutions hold a bearish view on future crude oil demand, citing that the risk of an economic downturn has not completely receded. Several banks and institutions have already downgraded their future crude oil price expectations.

Although Saudi Arabia and Russia have announced additional production cuts, market analysts still keep an eye on the impact of economic recession risks on oil demand.

Short opportunity is imminent?

Therefore, caution is needed with the recent sharp increase in crude oil prices. If the upward momentum in crude oil is indeed overstretched and likely to reverse, it may present a good short-selling opportunity for futures traders.

Advantages of oil futures

Trading crude oil futures has its advantages.

Crude oil futures edge higher on G-7 move to phase out Russian imports - The Hindu BusinessLine

The trading hours for crude oil futures on the Chicago Mercantile Exchange (CME) are nearly 24 hours, allowing traders to respond quickly to political and economic events, presenting multiple trading opportunities with both long and short positions.

It is considered a high-liquidity, defensive, and diversifying investment tool with several advantages.

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