After sliding 11% from 44M high of US$75.3 (3 July) to a low of US$67 (18 July) amid concerns over higher OPEC crude production by end 2018, easing trade wars following US-Euro trade agreement and potential supply disruptions saw prices recovered to end at US$68.7. Expect rangebound mode within US$67-70 in the short term.

WTI retreated for the 4th consecutive weeks. Last Friday, WTI dropped as much as 1.9% or US$1.3, weighed down by worries over increased global supplies after Russia’s energy minister, Alexander Novak, indicated Friday that a coalition of producers could pump more oil than agreed by year-end, a move which could signal the possible death of an OPEC production deal. However, it narrowed the losses to 1.3% or US$0.9, drawing support from easing trade tensions after a breakthrough in US-Euro trade talk and a temporary shutdown by Saudi Arabia of a key crude oil shipping lane. WoW, WTI slid US$1.77 or 2.5% to record a 4th straight week of declines. MoM, WTI prices are also on track to end July lower by c.7.3% amid growing indications of higher production from Saudi Arabia, Russia and the US.

Key events this week. Oil traders will continue to monitor any potential disruptions to oil flows, especially from the Middle East. Last week, Saudi Arabia temporarily paused shipments via the Red Sea's Bab el-Mandeb strait, one of the world's most important tanker routes, after two of its oil tankers were reportedly attacked by Houthi rebels.

Crude inventories and rigs data to be monitored. Elsewhere, fresh weekly data on U.S. commercial crude inventories and rigs data by U.S. EIA and Baker Hughes (3 Aug) to gauge the strength of demand in the world’s largest oil consumer and how fast output levels will continue to rise will capture the market's attention. Overall, U.S. oil production reached 11m bpd for the first time earlier this month. The country has added nearly 1m bpd in production since November, thanks to rapid increases in shale drilling. To recap, the U.S. rig count, an early indicator of future output, rose by 3 to 861 last week, pointing to the first rig count rise in three weeks and increaisdng signs of U.S. output growth.

Range bound trade with key support near US$66.3. After falling below the 50% FR support of US$69.5 and together with the weak indicators, WTI’s prices will remain pressured unless staging a decisive rebound above US$70 psychological barrier. A breakout above US$70 will spur prices higher towards US$71.1-72.6 before reaching our LT objective at US$75.3. On the flipside, failure to defend US$68.0 (61.8% FR) will witness further selldown towards major support trendline at US$66.0(daily chart).

Source: Hong Leong Investment Bank Research - 30 July 2018