Trade view /
29 August 2016 at 12:26 GMT
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.
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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):
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
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Non-independent investment research disclaimer applies. Read more