Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Is A Big Move In Oil Prices Due?

Commodities / Crude Oil Jun 29, 2017 - 05:14 PM GMT

By: OilPrice_Com

Commodities

In options trading, a straddle is literally a sit-on-the-fence strategy. By purchasing a put and a call at the same strike (price of underlying commodity) for the same time period, an investor isn’t making a conventional directional bet; rather the investor is looking for a big move either up or down. The rub is that the big move must be greater than the sum of the two option premia or the bet goes south. But that is in the nature of the trade.


From a fundamental industry perspective (Conflicting News Keeps Oil Prices Down to a more specifically trading focus (Are Oil Markets Becoming Untradeable?) confusion has reigned supreme in the crude oil markets of late. WTI is down about 12 percent for the month of June and is set for its longest run of weekly declines since 2015. In addition, crude has been displaying considerable price volatility on a day-by-day basis, largely to the downside. So would anybody be putting on a straddle in the WTI market today? Let’s assess the situation.

Bullish considerations:

Hurricane season in the Gulf of Mexico is upon us early.

If rigs go offline because of a vigorous hurricane season, production will be shut-in and crude prices will rise. The first storm of the season has already made land-fall, and the usual season is August-November, so the storms are early this year.

How good a job can OPEC do in terms of maintaining production cuts, discipline and compliance within OPEC and non-OPEC?

If OPEC succeeds at making the cartel march to its tune, then all will be well. In addition, future even deeper cuts will help support the oil price. What realistically are the chances of that?

Can Saudi Arabia really influence the EIA inventory numbers?

The Saudis say that the current OPEC cuts need time to impact the market. But can they themselves surreptitiously impact the market? Analyst John Kilduff of Again Capital interviewed by CNBC has made the novel suggestion that it is in their hands by changing the flow of exports from the U.S. to other markets with the effect of decreasing inventories artificially. He also thinks that unless OPEC cuts much deeper, the current game of chicken is going to continue among market participants.

Is there a credit crunch looming in the patch?

At current lower crude prices, U.S. shale production could be negatively impacted over the next few months and some production could come off line as producer cash flow dries up and some of the hedges from last year begin to run off. Less drilling activity will put upward pressure on prices.

Where is the U.S. dollar really going?

If U.S. rates are going to the moon, then the U.S. dollar will rise and commodity prices fall. But what if the Fed is done with the current rate cycle? Recent strength in WTI this past week is probably a reflection of a weaker U.S. dollar—is this a sign of things to come?

Bearish considerations:

The fundamental macro-economic backdrop to WTI has been bearish.

The CITI U.S. Macro-Economic Index (or Surprise Index) recently plunged to a six year low, meaning that economic data have been exceptionally disappointing. Global economic growth has been anything but robust, including a weak U.S. GDP print of under 2 percent, while even in so-called faster growing Europe, macro-economic conditions are soft.

Despite OPEC’s best efforts, the supply/demand dynamic was not effectively addressed.

Increasing U.S. production and higher domestic rig counts have also undercut OPEC’s attempts to limit supply. At the same time, declining U.S. demand for gasoline has been mirrored by declines in Japan, China and the rest of Asia. All OPEC producers, including the Saudis, have actually increased production in the last two months.

Having said that, increases in U.S. shale production, growth in DUCs and global inventory levels matter.

Limits to Nigerian and Libyan production were simply disregarded by OPEC at its May meeting, while both countries have made a surprisingly robust recovery in terms of production. But the domestic U.S. industry has proved so resilient in terms of using cost-effective technology that inventory levels remain elevated.

Who really believed the OPEC charm offensive?

The 25 May OPEC and non-OPEC member meeting in Vienna was bruited to be make or break. But even with the agreed production cuts and their 9-month extension, the cartel has been unable to keep its act together, as compliance issues are paramount and it is obvious that OPEC members are pursuing their own agendas (OPEC Members Pursue Own Agenda As Glut Persists)

The technical picture was deteriorating.

WTI was unable to break out of its $52-54 upside range. Instead, a pattern of lower highs and lower lows has been apparent since early May. Recently, WTI broke major support at $45, while Brent completed a death cross (Brent Stands at Death’s Door With Bearish Cross Formation: Chart) where the 50-day moving average falls below the 200-day, which last occurred in the latter part of 2014.

Straddle this market or not?

Violent price swings in tech stocks, gold, oil and other asset classes are a result of the preponderance of algorithmic trading plus high levels of leverage prevalent across all markets today. What used to be price discovery is now essentially noise.

Just to reiterate what I said on 6 May 2017 (How Much Further Could Oil Prices Fall?), my one dollar/one euro/one pound (name your currency) bet would still be that oil goes back to the high $20s-low $30s as it did in the winter of 2016 before it goes back above $60.

Link to original article: http://oilprice.com/Energy/Oil-Prices/Is-A-Big-Move-In-Oil-Prices-Due.html

By Brian Noble for Oilprice.com

© 2017 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules