Strategic trade
Trade view / 02 November 2016 at 15:49 GMT

Brent ready to bounce? — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
Instrument: OILUKJAN17
Price target:
Market price:
SaxoStrats
 
Background

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. 

Short term:
Brent crude
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Source: Saxo Bank

Long term:
Brent crude
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.

Parameters

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

For more on commodities click here.

Non-independent investment research disclaimer applies. Read more
2y
Ole Hansen Ole Hansen
It is still early days for this traded idea but we have seen the oil market manage to bounce despite the barrage of negative news hitting the screens yesterday.
The key remains whether hedge funds have reduced what was a record long position to a more manageable levels thereby lowering the risk of additional long liquidation.
Today's price action will important as it will give us an idea as to whether this is a "sell into rally market" or if we have reached the stage of consolidation.
2y
Ole Hansen Ole Hansen
Crude oil remain under pressure with spreads moving deeper into contango, a sign of rising supply. Our counter-trend long in Brent looks increasingly in danger of getting stopped out with the low so far today just 5 ticks above the stop level. Overall we need to see a close above $46.18 into the weekend in order to avoid further technical selling next week.
2y
Bullionaire Bullionaire
The saudis....
2y
Ole Hansen Ole Hansen
Reason behind latest oil sell-off: OPEC SOURCES SAY SAUDI ARABIA HAS THREATENED TO STEEPLY RAISE OIL OUTPUT AT MEETING OF OPEC EXPERTS LAST WEEK AFTER IRAN REFUSED TO CAP OUTPUT AT BELOW 4 MLN BPD
2y
yakcay yakcay
stopped out at 45.90
2y
Bullionaire Bullionaire
Even though a set back for the near term, this shows how serious the Saudis are in getting the deal done. As you said Ole, we might still have some sort of agreement bu month end.

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