• Fxwirepor: Crude technical and fundamental drivers and trades perspectives

    Source: FxWire Pro - Technicals / 03 Dec 2019 07:21:27   America/New_York

    Crude oil prices are stabilizing after last weekend’s scary price plunge. WTI crude has slumped more than 5.10% or $3 on Friday. But from the last two days, crude prices are currently showing support at $55 levels.

    Technically, WTI crude's price consolidation looks to be stronger on the triple bottom formation, bearish engulfing has occurred at $55.22 levels that resumes downswings and nudges prices below DMAs, while both leading oscillators substantiate selling momentum.

    The Energy sub index had started to lose steam earlier this week due to concerns related to US-China trade talks. Whilst there is still a mixed narrative on US-China Phase 1 trade deal, the very prospect of a potential deal along with a possibility of US supply growth slowing considerably next year had led oil to grind higher slowly in contrast to other commodities. Investor positioning in fact was turning a bit more favorable with shorts being reduced and long being added since Oct 22nd. .

    Oil seems to trade in a holding pattern (a range of $60-65 for Brent) and will continue to do so until there is an affirmative on US China trade deal. Our strategists have taken profits on half of their position in crude Jan’20 Brent contract last week but still maintain bullish view supported by tighter markets in the very near term and investor positioning. On the Dec 5-6 OPEC+ meeting their view is that OPEC+ might be hesitant in delivering a deeper cut if Brent hovers around current levels and if the risk bias remains positive on the back of any positive narrative on US- China trade talks. In fact if US supply growth slows down more than expected next year, then markets could be fairly balanced if OPEC+ were to keep strong compliance levels. The team has Brent averaging closer to $60/bbl in 2020 with 1Q20 at $63.75/bbl and oil prices are currently tracking close to the forecasts for now.

    For those concerned about demand, the combination of lower rates, low oil prices some signs of stabilization in the global manufacturing PMI are supportive demand in the near-term. 

    Hence, we advocate trade updates on crude oil derivatives trades: Contemplating above technical and fundamental rationale, Stay long ICE Brent Jan’20 contract on supportive near-term fundamentals. Maintain longs in CME WTI futures of December’2019 month deliveries. 

    And also a risk reversal strategy by going long in Brent Dec’19 10D call versus short Dec’19 10D put. Thereby, we also stay tactically short Brent-Dubai Q3’19 swap spread due to mounting risks from Iran sanctions.

Share on,