WTI tumbled 8.4% from 2Y high of US$72.8 amid production boost to ease tight supplies ahead of the OPEC meeting on 22 June. The selldown was also due to the recent US$ strength. Technically, the negatives are likely to be priced in with crucial support near US$64. Near term technical rebound will be capped at US$70 pending the OPEC outcome.

WTI retreated 8% from 2-year high of US$72.8. US West Texas Intermediate (WTI) crude futures dropped 1.7% or US$1.1 to US$66.7 to score its 5th consecutive fall amid expectations that OPEC countries and Russia would pump more oil to ease a potential shortfall in supply.

All eyes on OPEC meeting on 22 June. The OPEC and non-OPEC producers led by Russia have been curbing output by about 1.8m barrels per day (bpd) since Jan 2017 (set to expire end 2018) to prop up oil prices and reduce high global oil stocks. Prior to the OPEC meeting on 22 June, concerns that Saudi Arabia and Russia could boost output (as much as 1m bpd) to meet the shortfall in supply from Iran and Venezuela have put downward pressures on oil prices in recent sessions. Meanwhile, sentiment of the US-denominated oil prices futures were also dampened by the strength in US$ lately.

EIA to release updates on 31 May. The latest weekly data on US drilling, released prior to the long weekend, showed that production continued to escalate. US drillers added 15 oil rigs last week, bringing the total count to 859, the highest number since March 2015, underscoring worries about rising US output. Traders will have to wait until Thursday to see the latest data from the Energy Information Administration (EIA) on U.S. petroleum supplies, which will be released a day later than usual because of Monday’s holiday.

ST consolidation with critical support near US$64. After registering a three black crows since hitting a 2-year high of US72.8 on 22 May, WTI slid to a low of US$65.8 on 28 May before ending at US$66.7. Given the oversold daily technicals and hammer candlestick pattern, we see intermediate supports at US65.8, followed by US$64.5 (the weekly long term support trendline). Failure to defend it will witness further selldown towards US$61.8 (Apr low). On the upside, a successful assault above US$67.5 (27 May high) will lift prices higher towards US%68.5 (38.2%FR) and US$69.3 (50% FR) before refilling the gap down targets of US$70.5 (24 May low).

Source: Hong Leong Investment Bank Research - 30 May 2018