Please note that due to market volatility, some of the key levels may have already been reached and scenarios played out.

Trading positions 

• Henry Hub Natural Gas No new position justified from the risk/reward point of view.
• RBOB Gasoline No new position justified from the risk/reward point of view.
• WTI Crude Oil [CLZ2022] Long around the 84.02-85.93 area (yellow band) with stop at 81.30 and targets at 91.63, 96.78 & 99.74.
• Brent Crude Oil No new position justified from the risk/reward point of view.

Regarding risk management, it is always best to define your strategy according to your own risk profile. For some guidance on trade management, read one of my articles on that topic.

For some guidance on risk management in a more dynamic dimension while managing multiple contracts, I invite you to read an article I wrote on how to spread risk for a trade.

WTI Crude Oil (CLZ22) Futures (December contract, daily chart)

By extending above the previous swing high (from October), black gold is now switching from a bearish to a new bullish trend, as its previous high was just taken over in the pre-open US trading session. Therefore, it could be the right time to switch our market bias into an overall uptrend and, therefore, get ready to go long. At the time being, some may want to play the breakout above October’s high.

My only concern with this approach is that the black gold market could face potentially strong resistance very soon, around the next swing high from August. Thus, I would rather get ready to enter into the support zone of the next correction, where crude oil may find a rebounding floor prior to extending further gains. By doing so, the risk management appears more beneficial from the risk-to-reward point of view, with a stop located at the previous swing low from October.

WTI Crude Oil (CLZ22) Futures (December contract, 4H chart)

Oil prices are trading this Friday at their highest in nearly a month, benefiting from the looming tighter supply as an effect of market speculation around potential zero-Covid policy relief in China.

In addition to the reduction in the OPEC+ production target of 2 million barrels per day for the month of November, the EU embargo and the planned cap on the price of Russian oil add to the pervasive tension in the market.

In addition, the G7 member countries and Australia have agreed to set a fixed cap for the price of Russian oil rather than a variable rate in the interests of clarity, while the United Kingdom has aligned itself with the European Union by prohibiting British ships and service providers from contributing to the maritime transport of Russian oil sold above the fixed price set by the G7 and Australia.

In fact, the services covered by the ban include crude oil transport insurance, a type of insurance called protection and indemnity (P&I) essential for oil tankers covering risks ranging from wars to environmental damage for amounts that can be colossal. Actually, the United Kingdom holds 60% of this market.

On the other hand, the US dollar has weakened today against a basket of major currencies:

US Dollar Currency Index (DXY) CFD (daily chart)

On the WTI Crude Oil chart, by zooming out over the weekly chart, here is what we have now:

WTI Crude Oil (CL) Futures (Continuous, weekly chart)

So here on the long-term horizon, the overall structure of the crude oil market shows an upward trend. Until today we were in a bearish trend on the daily chart (in a mid-term horizon), however, by rallying above its previous month’s high, the WTI might be signaling a trend change by switching into bullish territory again.

Given the recent disagreements between Saudi Arabia-led OPEC+ – reducing its output of crude production – and the United States just as they are entering their mid-term elections, we could expect some manipulations on the oil futures market to push prices lower, the same way it has been done in the gold market over the past 20 years or so. However, the main difference here lies in the fact that the crude oil futures market – unlike the gold market which is mainly used for hedging purposes, portfolio diversification and speculation through paper trading – entails a much larger share of physical deliveries by major market players, which is what makes it more difficult to manipulate.

That’s all, folks, for today – Have a nice weekend!

As always, we’ll keep you, our subscribers well informed.

Thank you.

Sebastien Bischeri
Oil & Gas Trading Strategist