Trading position (short-term; my opinion; levels for crude oil’s continuous futures contract): Those entering the market now can do so by holding long positions with entry at $63-63.5, with $59.7 as a stop-loss and $68.20 as the initial price target.
Supply chain risk rose again with a cyber-attack on a fuel pipeline in the US. Is this now a risk-driven oil market with a fundamental one taking a back seat?
The US government issued emergency legislation on Sunday after the largest fuel pipeline in the US was hit by a ransomware cyber-attack.
The Colonial Pipeline, the largest fuel pipeline in the US, was hit by a cyber-attack on May 7, 2021, leading to the US government issuing emergency legislation. That will result in relaxed rules on road transportation of fuel allowing drivers to clock extra hours while transporting petroleum products. The pipeline is currently offline and efforts are underway to restore the operations.
The pipeline under attack handles around 45% of the supply of gasoline, gas and jet fuel to the Eastern US with daily transportation of 2.5 million barrels a day. Naturally, the impact of such supply chain disruption can be seen in higher oil prices as prices have been in an uptrend since morning.
It all depends on how quickly this pipeline can be brought online as the long-term impact will result in imbalances across supply chains. The impact will not necessarily be bullish and can lead to a forced demand cut for the US. We will be closely monitoring the development.
Jeffrey Currie, Goldman's global head of commodities research recently stated that "we're in a new world," and nowhere is that more evident than in the record-setting increase in the price of commodities across the globe. Bloomberg's Spot Commodity Index is up by 62% YoY - the fastest growth since Jan 1980. Is oil next in the line for a massive rally? Well, it is quite likely.
Furthermore, it is my own viewpoint on supply chain risks that they are a strong factor in oil price dynamics. I concluded in the last alert that covid-19 drive demand would be the driver for the next rally, but supply chain risks could also play a part. However, they remain strong and unpredictable, which means higher entropy. I remain bullish and long on oil with smart and intermittent profit bookings.
To summarize, the US pipeline cyberattack again brought supply chain risks to the forefront. Both supply-demand fundamentals and supply disruption risks are in favor of an upward oil price trajectory for the next many months.
As always, we’ll keep you, our subscribers, well-informed.
Trading position (short-term; my opinion; levels for crude oil’s continuous futures contract): Those entering the market now can do so by holding long positions with entry at $63-63.5, with $59.7 as a stop-loss and $68.20 as the initial price target.
Thank you.
Nishant Jain, MBA, CPSM
Oil Trading Strategist
