2019-11-11 • Updated
Don’t you know what to trade? Trade oil!
This week is full of events for the oil market. It started with a new US-China dispute. Last week the US imposed additional tariffs on Chinese goods. As a result, China declared a possibility of retaliation. The country threatens to impose duties on US commodities, including oil imports. Up to now, US production managed to overtake Saudi Arabia as the world’s second oil exporter. Only Russia produces more for now. However, if China levies tariffs, it will lead to a significant drop-off in American exports. Firstly, it is supposed to affect WTI prices. However, analysts say that China can just replace US oil with the Iranian one, that will have a positive effect on Brent.
What is more, the US is going to punch OPEC. US lawmakers have revived the “No Oil Producing and Exporting Cartels Act” (NOPEC) which can make the cartel subject to the Sherman antitrust law. It will let the US government sue OPEC for manipulating the energy market, seeking billions of dollars in reparations. US lawmakers had been trying to pass the Act since 2000. However, both former Presidents refused to sign it. Now the threat is greater as Mr. Trump is likely to sign the Act. In his book “Time to Get Tough: Making America №1 Again” Trump said, “We can start by suing OPEC for violating antitrust laws”. It will be a long period until the bill will become a law. However, the threat is big.
Some words on the upcoming events. The end of the week will be important for future oil prices as well. OPEC and its allies meet on June 22 in Vienna to discuss further production cuts. Let us remind you that although cuts program has finally succeeded and oil is trading at good levels, Russia and Saudi Arabia offered to increase the production to fulfill falls in Venezuela and possible cuts from Iran (both are a result of US sanctions). It’s well-known that an increase in the output will lead to a fall in the prices. However, it’s not a solved issue yet. Other participants of the cuts agreement aren’t ready to do increase the production. Iran's representative to the bloc said "If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that's a breach of the cooperation agreement." It seems like there are misunderstandings between allies.
As a result, traders should take into consideration the meeting. If allies agree to raise the output, oil will definitely fall. Otherwise, it will be able to stay at the current levels.
On Wednesday, crude oil inventories data was released. It was much weaker than anticipated that is good for oil. WTI managed to recover after Tuesday fall. It’s trading above the pivot point at $65.25. If OPEC and allies don’t raise the output, will be able to reach $67. Otherwise, it will be below $65.25.
However, the data couldn’t support Brent as OPEC’s meeting has a greater impact on this oil benchmark now. Brent can’t break the resistance at $75.70 (50-day MA puts pressure on it). Encouraging news from OPEC and allies will pull it above $75.70. Otherwise, the fall below $74.40 is anticipated.
But what about the further forecast?
Goldman Sachs stays bullish despite all threats. According to the bank, Brent crude oil prices will peak above $82 a barrel this summer, even if OPEC and allies agree to lift the production. Analysts say that “the oil market remains in deficit with resilient demand growth and rising disruptions requiring a higher core OPEC and Russia production to avoid a stock-out by year-end”. They also say that Brent oil prices may remain “range bound” if OPEC initially increases production, however, they still expect higher prices in coming months and see upside risks to a year-end $75 forecast. As WTI and Brent have almost the same direction, WTI is supposed to be at good levels as well.
Making a conclusion, we can say that the oil market is highly volatile. There are a lot of negative factors that shake the market. Brent and WTI are supposed to suffer a big volatility, however, the middle-term forecast remains bullish.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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