Oil Breaks Out
As we close out another week it’s time once again to reflect on performance. Chatting with other traders this week it’s been interesting to hear the different positions people have been involved in. As always, however, it’s been even more interesting to hear about the trades left untaken, the ones people have been kicking themselves over. Away from the FX markets this week it seems the big move that traders have been focusing on is the more than 5% rally in crude oil. So, as always, if you were in on the trade, great work! If not? Better luck next week. Let’s take a look at what happened and why this was a great trade.
What Caused the Move?
Oil prices have been trading higher recently boosted by the uptick in demand expectations as key economies continue down the path to reopening. The vaccination success in the UK and the US has seen both countries progressing along their scheduled reopening paths, leading to higher oil consumption and an upgraded demand outlook.
In the US, expectations of a record summer driving season are helping keep oil demand firm while in the UK and Europe, the prospect of a return to tourism this summer are lifting demand expectations for the aviation sector. Recent EIA inventories reports have highlighted an ongoing drawdown in surpluses. The EIA report this week showed a further 5+ million barrel drawdown, far deeper than the market was projecting, highlighting the ongoing increase in demand.
OPEC Forecasts Tighter Market
OPEC this week also updated its oil outlook and is now forecasting much tighter conditions for the global oil market. The cartel noted that the global surplus built up over the course of the pandemic has now almost been worked off and is expecting stockpiles to fall heavily over the second half of the year.
So, now we’ve walked through fundamentals, let’s take a look at the technical picture.
Technical Views
CRUDE
The rally in crude has seen price trading above the prior 2021 highs and now challenging the 69.53 level highs. With the MACD bullish here, the focus is on further upside though bearish divergence in the RSI indicator warrants caution. While the 65.52 level holds as support, the focus is on a push higher towards 74.46 next.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.