Crude oil finds a bid following a 15% correction Crude oil finds a bid following a 15% correction Crude oil finds a bid following a 15% correction

Crude oil finds a bid following a 15% correction

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil has managed to find support following a sharp correction that took Brent and WTI below the ranges that had prevailed since June. Upbeat economic data from China and the U.S., tropical storms building across the Atlantic and a recovery in U.S. megacap stocks have all helped drive renewed risk appetite. Next up the weekly stock report from the EIA which, according to the API, may yield a surprise inventory reduction.


What is our trading focus?

OILUKNOV20 – Brent Crude Oil (November)
OILUSOCT20 – WTI Crude Oil (October)

____________________________________________________________________________________________________

WTI Crude Oil (OILUSOCT20) and Brent Crude Oil (OILUKNOV20) have both managed to find support following their recent sharp correction and break below the trend that had prevailed since June. Upbeat economic data from China and the U.S. the world's biggest consumers, tropical storms building across the Atlantic and a recovery in U.S. megacap stocks have all helped drive renewed risk appetite.

After briefly dipping below the 100-day moving average, Brent crude oil on several consecutive days managed to bounce from an area below $39.50/b. Using Fibonacci retracement as a guide to where resistance may emerge we are focusing on $42/b (38.2% retracement) followed by $43/b (50%.

However, as the pandemic continue to slow the recovery in fuel demand, the upside potential in our opinion is likely to remain limited over the coming months. With that in mind and given the risk of increased production from Libya, we see Brent crude oil settling into a new lower range around $40/b before eventually moving higher into year end and 2021.

Source: Saxo Group

The 15% and 18% corrections in Brent and WTI respectively have not only helped bring the price of crude oil more in line with current fundamentals, which IEA, OPEC and BP in recent updates, have described as fragile. Another impact of the correction has been a sharp reduction in speculative longs held by funds. A development that has allowed the market to become more receptive to price supportive news.

In the latest Commitment of Traders report covering the week to September 8, funds cut their net-long in crude oil and product futures by 28%, the biggest weekly reduction in more than two years. Now consider that around half the reduction was driven by fresh short selling, these recently established short positions are now at risk of getting squeezed should prices continue higher.

Before turning the attention to the OPEC+ JMMC committee meeting on Thursday, the market will be focusing on today’s “Weekly Petroleum Status Report” from the U.S. Energy Information Administration. The market received a further boost overnight after American Petroleum Institute surprised the market by reporting a 9.5 million barrels decline last week. A contradiction to surveys looking for a build of around 2 million barrels.

Equally important this week will be the level of refinery demand given stalling growth in fuel demand and elevated stocks of products, not least distillates such as diesel and jet fuel.

As per usual I will publish the result of the report on my Twitter handle @Ole_S_Hansen

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.