Opec’s lack of leadership in terms of delivering the promised production cuts combined with rising production from Libya, Nigeria, and Russia have all helped put oil market under pressure during the past couple of weeks.
EIA data have – to put it mildly – been very erratic during the past three months and today’s data were no exception. Inventories jumped by the most on record as a result of a surge in imports, which went from being below to above the five-year average in just one week.
In recent articles we have highlighted our belief that Opec will come to some sort of an agreement on November 30 no matter how difficult it looks at the moment. The current selloff has seen most of the post-Algiers rally being wiped out and it has sent a strong signal to the cartel what the cost of failure will be.
On that basis and as we approach support on LCOF7 at $46.18/barrel, this being the 61.8% retracement of the July to October rally, and with RSI moving close to oversold territory we look for a technical reaction to the upside.
The timing may prove to be wrong and as this is a countertrend reaction we opt for a relatively tight stop, also considering that both WTI and Brent have broken the uptrends in place since their early 2016 lows.
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Source: Saxo Bank
Management and risk description
Key risks include continued selling from hedge funds forced to reduce net-long exposures and continued discord among Opec members.
Entry: buy LCOF7 or OILUKJAN17 at market (last $46.6/b).
Stop: $45.9/b (1/2 ATR =$0.72/b).
Target: $48 and $49.25/b.
Time horizon: one to two weeks.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more