Brent crude breaks higher Brent crude breaks higher Brent crude breaks higher

Brent crude breaks higher

Trade View 5 minutes to read
Medium Term / Buy
Ole Hansen

Head of Commodity Strategy

Summary:  We look to buy Brent crude on the break of the double top from May at $80.50/barrel. We will set our stop at $77.40/b and trade the December contract.


Instrument: LCOZ8 or OILUKDEC18
Price Target: Open
Market Price: 80.03

Background:
Brent crude oil has reached the highest level since November 2014 after breaking the double top from May at $80.50/barrel. The move comes after the Opec+ meeting in Algiers over the weekend failed to deliver the production increase that President Trump demanded in a recent tweet.

Trump's actions, i.e. the re-introduction of sanctions against Iran, remain the key reason why oil prices are moving higher at a time when the US-China trade war and emerging market weakness have raised some concerns about the demand outlook. 

Given the immediate negative impact on supply and the not-yet-measurable future impact on demand, however, the price has found the upside to be the direction of least resistance. Adding to the strength this morning are comments from two of the worlds biggest oil traders, Trafigura and Mercuria, at the annual Asia Pacific Petroleum Conference (APPEC) in Singapore. Both highlighted the risk of crude oil (Brent) reaching $90/b this year and $100/b in 2019. Mercuria saw the potential drop in supplies from Iran as high as 2 million barrels/day. A drop of this magnitude is somewhat higher than expectations; if realised, Opec and its friends would struggle to meet the shortfall, hence the call for higher prices. 

The combination of low inventories, falling spare capacity, US production beginning to look constrained, production challenges in Venezuela, and not least the re-introduction of Iranian sanctions have created a situation where fundamentals, price momentum, and geopolitical risks all point to higher prices. 

Our breakout  model, which is built on the Donchian Channel Framework, has given us a buy signal today on a close above $79.80/b, the previous highest close from May 23. Adding to this the break above $80.50/b today and a continued extension to $81.90/b and beyond look increasingly likely. 
Parameters:

Entry: On a close above $70.80/barrel (LCOX8)
Stop: $77.40/b followed by a trailing stop of $3.2/b, equivalent to 2 ATR (Average True Range).
Target: Open.
Time Horizon: Medium term

Charts below (daily and weekly)
Brent crude
Brent crude (daily, source: Saxo Bank)
Brent crude
Brent crude (weekly, source: Saxo Bank)
Management And Risk Description:
Continued dollar strength could weigh further on demand as it increases the strain on EM countries already feeling the impact of high oil prices in local currencies. Another risk is the US releasing oil from its strategic reserves to counter the shortfall. 
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 Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo 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.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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