What is our trading focus?
OILUKMAY21 – Brent Crude Oil (May)
OILUSAPR21 – WTI Crude Oil (April)
Crude oil has stabilized following a four-day correction that was triggered by risk reduction in response to the intense US Treasury sell-off last week. A move that briefly traumatized markets and helped trigger a long overdue consolidation among in-demand commodities from crude oil to copper and key crops. However, while other raw materials have recovered some of their losses, crude oil has adopted a wait-and-see mode ahead of Thursday’s OPEC+ meeting where the group has decide how much the taps can be turned up from next month.
During the past few months, the oil market has seen a noticeable tightening with rising backwardation the clearest sign of a market in recovery mode. Driven by the combination of Saudi’s January decision curb production by 1 million barrels/day through March and temporary disruptions in US production during the Texas freeze. Adding to this an unusual cold winter across the northern hemisphere combined with a slow recovery in global demand as vaccine rollouts increase mobility, most noticeable in Asia where demand has been particularly strong.
An increased backwardation in the oil market where the spot price trades the highest on the curve, a reflection of a tightening market, has seen the return from holding a passive long position rise close to 10% on an annualized basis and near the most favorable conditions the market has been able to offer investors during the past decade.