Is Crude Oil Switching into Bullish Territory Now? / Commodities / Crude Oil
Oil prices are trading this Friday attheir highest in nearly a month, benefiting from the looming tighter supply asan effect of market speculation around potential zero-Covid policy relief inChina.
Availableto premium subscribers only – New trading projections on Crude Oil FuturesDEC22
In addition to the reduction in the OPEC+production target of 2 million barrels per day for the month of November, theEU embargo and the planned cap on the price of Russian oil add to the pervasivetension in the market.
In addition, the G7 member countries andAustralia have agreed to set a fixed cap for the price of Russian oil ratherthan a variable rate in the interests of clarity, while the United Kingdom hasaligned itself with the European Union by prohibiting British ships and serviceproviders from contributing to the maritime transport of Russian oil sold abovethe fixed price set by the G7 and Australia.
In fact, the services covered by the baninclude crude oil transport insurance, a type of insurance called protectionand indemnity (P&I) essential for oil tankers covering risks ranging fromwars to environmental damage for amounts that can be colossal. Actually, theUnited Kingdom holds 60% of this market.
On the other hand, the US dollar hasweakened today against a basket of major currencies:
US Dollar Currency Index (DXY) CFD (dailychart)
On the WTI Crude Oil chart, by zoomingout 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, theoverall structure of the crude oil market shows an upward trend. Until today wewere in a bearish trend on the daily chart (in a mid-term horizon), however, byrallying above its previous month’s high, the WTI might be signaling a trendchange by switching into bullish territory again.
Given the recent disagreements betweenSaudi Arabia-led OPEC+ – reducing its output of crude production – and theUnited States just as they are entering their mid-term elections, we couldexpect some manipulations on the oil futures market to push prices lower, thesame 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 futuresmarket – unlike the gold market which is mainly used for hedging purposes,portfolio diversification and speculation through paper trading – entails amuch larger share of physical deliveries by major market players, which is whatmakes it more difficult to manipulate.
Havea nice weekend!
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Thank you.
Sebastien Bischeri
Oil & Gas Trading Strategist
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