• Choppy trend ahead after recent rally. After hitting YTD high of US$55.2 on 3 Jan, WTI plummeted 23.8% to a low of $42.1 on 21 June, as the effort to drain global inventories has taken longer than expected. However, on the back of larger than expected inventory drawdowns and OPEC-led production cuts, WTI managed to rebound 19.7% from a $42 low to a high of $50.4 (31 July & 1 Aug) before settling 2.7% lower at $48.8 overnight.

• Unexpected climb in inventories triggered a 2.7% fall overnight. The overnight fall was driven by American Petroleum Institute (API) report that U.S. crude inventories unexpectedly jumped, the first crude build since the end of June when compared with Energy Information Administration (EIA) data. The EIA will release its inventory data tonight. Sentiment was also dampened by reports that OPEC's output rose last month despite the cartel's deal to slash production.

• Short term pullback with immediate support near 46.3. Following an overnight 2.7% fall, WTI’s short term outlook has turned negative as prices are likely to dip lower towards $47.3 (61.8% FR) and $46.3 (50% FR and uptrend support), given weakening technicals. A violation of the support trend line will witness the end of current rally and the WTI will continue to be trapped in the falling channel prices to retest the $42-43 territory.

• LT objective at $55.2 if able to break above $50.4 decisively. On the flipside, WTI is poised for a resumption of uptrend and an ascending triangle breakout in the long term, if it can stage a successful breakout above $50.4 after trending strongly above the support trend line at $44. Further upside targets are $52.3 (123.6% FP), $53.5 (138.2% FP) and YTD high of $55.2.

Source: Hong Leong Investment Bank Research - 2 Aug 2017