Short term
Trade view / 24 October 2016 at 14:20 GMT

Brent oil risk skewed to the downside – #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
Price target:
Market price:
image

Background

A fully priced in Opec deal leaves the risk in crude oil skewed to the downside.  In my latest crude oil update I highlighted the emerging danger signals which could potentially trigger some short-term oil price weakness: 

  • Libyan output is surging and could potentially rise by what Opec promised to cut. 
  • Iraq has just like Iran, Nigeria and Libya asked to be exempt from cutting production as it fights Islamic militants.
  • Rising US rig count and active forward hedging could see US production stabilise sooner than expected. 
  • The prompt contango spread in Brent crude has widened to the highest this year, a sign of oversupply.
  • Hedge funds hold a record combined net-long position in Brent and WTI crude oil. The gross-short has hit a level which indicates that only limited support from short-covering can now be expected.  

Parameters

Sell: LCOZ6 or OILUKDEC16 on a stop below $51.1 or at $52 on a limit
Stop: $1.25 from entry (1 ATR) 
Target: $49.4 and $48.4

Time horizon: 1 to 2 weeks

Trade management: On hitting the first target, lower the stop on the remaining to entry. 

Key risks: Continued strong verbal support from oil producers. Another big inventory reduction in the US.  

Short-term:
short-term
 

















Source: Saxo Bank

Long-term view:
chart
 















Source: Saxo Bank

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
2y
Ole Hansen Ole Hansen
The trade is now live following the break below $51.1
2y
AlexF AlexF
Dear Ole could not set it up in time do you recommend still to enter at 50.7 ?
2y
AlexF AlexF
In short 50,7 I ll add if we go back to 51/51.1
2y
Ole Hansen Ole Hansen
In theory the break below $51.2 (now resistance) should signal a deeper correction. Entering at or slightly below should be ok.
2y
AlexF AlexF
Strong move to 51.26 did not short second lot yet would u reco again to wait for 51,1 break I guess. What do u say if we close right here at 51,26 does it cancle trade ?
2y
Ole Hansen Ole Hansen
Oil remains headline driven. Just gave this comment to Bloomberg's oil report: “The focus stays with OPEC secretary-general’s efforts to get as many on board to cut production as possible,” said Ole Sloth Hansen, head of commodity strategy at Denmark’s Saxo Bank A/S. “The market will play this with continued skepticism but as long as negotiations are ongoing the selling appetite seems pretty low.”
The first attempt to break below $51 was rejected yesterday with recent shorts being scaled back in response to news from Opec members. We believe the upside is limited but for now the market remains range-bound and on that basis keeping the stop on the short position above technical resistance at $52 makes sense
2y
Ole Hansen Ole Hansen
More pressure on Opec and Saudi Arabia with news that Nigeria and Libya have raised production by 800k b/d since August. If successful they will be aiming for another 800k over the coming months.
https://twitter.com/Ole_S_Hansen/status/790874781537239045
2y
ajith ajith
What is your opinion about wticrude. will a limit order to sell at 49.90 $OK for today. With sl just above 50$
2y
Ole Hansen Ole Hansen
Hi ajith. Your trade parameters are very tight considering the current oil volatility. WTI resistance zone is likely to be between 49.80 and 50. US inventory report later today.
2y
Ole Hansen Ole Hansen
UKOILDEC16 positions need to be rolled before expiry Thursday afternoon CET while LCOZ6 will cash settle on Monday at close. The spread to Jan has increased in the favor of short positions by 30 ticks since Monday. Currently trading around $1.1, the highest level this year.
2y
Ole Hansen Ole Hansen
The November Brent crude expires on Monday. We maintain our short view and raise the stop and limits by the roll spread, currently at $1.08.

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