Trading position (short-term; my opinion; levels for crude oil’s continuous futures contract): Hold long positions with entry at $59-61 with $51.50 as a stop-loss and $68.10 as the initial price target. There is a decreased probability of big dips for the next few weeks, hence keeping the stop-loss much farther behind is justified.
The price of crude remains volatile and undecided about its future direction, fluctuating on a daily basis. Let’s have a look at the oil supply situation globally. OPEC+ has kept production low, leading to the price rallies and in all likelihood will keep the production levels lower in the coming months. The reasons for the production cuts are obvious, with the key reason being to make up for the lost oil revenue in the past year. This move has upset the large consumers of the world namely China, India and the U.S.
China is, therefore, diversifying its oil sources by buying more from Iran while India is exploring buying from the U.S. for the first time. The U.S. has ramped up the activity of its oil drilling rigs, thereby increasing the chance of flooding the market with shale oil in the next 3-6 months.
The issue of the Suez Canal being blocked by the large container ship Ever Given, has further restricted oil supply in the short term. It seems that there is a significant risk of the ship being stuck there for weeks, hence blocking around 9-10% of the world’s oil supply. The alternative route around Africa will add to overall oil prices as the route is much longer.
Demand remains sluggish in the short term, especially in Europe, as strict lockdowns are imposed in some countries to contain the spread of the virus. On the other hand, demand is consistently increasing in Asia and the U.S., even though Covid-19 cases fluctuate.
As seen from the chart above, the last three trading sessions are highly volatile, with prices ranging between $58-62. It seems that the impact through demand reduction has been baked in the prices now, and we have reasonable support at the $60 level. As the days pass, and if the Suez Canal remains blocked, we may see sessions of sharp rallies, thus reaching our long target of $68-70.
To summarize, the market remains volatile and is struggling to find a consistent direction to move. There seems to be support at the $58-60 levels and our long position still holds.
As always, we’ll keep you, our subscribers well informed.
Trading position (short-term; my opinion; levels for crude oil’s continuous futures contract): Hold long positions with entry at $59-61 with $51.50 as a stop-loss and $68.10 as the initial price target. There is a decreased probability of big dips for the next few weeks, hence keeping the stop-loss much farther behind is justified.
Thank you.
Nishant Jain, MBA, CPSM
Oil Trading Strategist
