Strategic trade
Trade view / 29 August 2016 at 12:26 GMT

#SaxoStrats: More weakness ahead for WTI

Head of Commodity Strategy / Saxo Bank
Instrument: OILUSOCT16
Price target:
Market price:

In our weekly “Commitments of Traders” update earlier today, we highlighted how oil bears have been exiting the market at the fastest pace on record. 

August has been a crazy month in terms of movements in the oil market. At the beginning of the month, hedge funds driven by the outlook of rising oil and product inventories had accumulated a record gross-short in WTI crude oil. These positions were hurt badly by the resumption of verbal intervention, not least from the Saudi oil minister. 

During a two week period up until August 23 funds bought a record 142,000 lots with 85% of the buying being short-covering. During the latest of these two weeks some 84,000 lots were bought, all of it above $46.50/barrel.

Adding Brent crude oil to the equation, we find that the net-long during the past few weeks has surged to 627,000 lots. 

Crude oil

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While the supporting re-balancing of the global oil market continues, we find that most of the rally seen over the past three weeks has been driven mostly by short-covering. With fundamentals yet to provide oil with a strong enough tailwind to break higher, we see the short-term risks once again being skewed to the downside. 

The combination of renewed dollar strength and doubts about Opec’s ability to show a united front could add to the negative sentiment over the coming weeks.

Short-term chart (WTI):
WTI crude oil
Source: Saxo Bank

Long-term (WTI):
WTI crude oil
Source: Saxo Bank 

Management and risk description

Key risks include continued verbal intervention from Opec members, the US inventory report on Wednesdays, and the US jobs report on September 3.

From a seasonal perspective crude oil has fallen every September for the last five years as inventories rose in response to lower refinery activity. 


Entry: sell CLV6 or OILUSOCT16 on a stop at $46.40.

Stop: $47.80 (1 ATR).

Targets: $44.70 and $43.60/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
30 August
Ole Hansen Ole Hansen
Crude oil has reversed earlier gains led by weakness in gasoline. The entry point of this trade idea has been hit.
31 August
SvsG SvsG
Hi, do you have any update before the inventory report?
31 August
AlexF AlexF
Yes please in at 46,45 would you add before report ?
31 August
SvsG SvsG
I mean ahead of today's inventory report. (Just to avoid misunderstanding)
31 August
Ole Hansen Ole Hansen
Writing a short update which will be posted on TF shortly. You can also follow me on twitter @Ole_S_Hansen where short updates are posted regularly
31 August
SvsG SvsG
01 September
Ole Hansen Ole Hansen
The first take profit level has been hit at $44.7/b following the bearish inventory report. The stop on the remaining position can now be lowered to entry level which coincides with Wednesday's high.
01 September
Ole Hansen Ole Hansen
The second take profit level has now been hit at $43.6/b with funds exiting longs faster than they got in.
02 September
SvsG SvsG
Nice trade.Thanks.


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