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A Glimpse At Crude Oil Market Driving Forces And Trade Strategies
Commodity markets eased further this week, especially the energy complex dropped more than 5.10%, while agriculture was down 1.9%. The BCOM index declined 1.2% with losses somewhat offset by stronger industrial metals.
Crude oil is marginally weaker this week as geopolitical tensions continued to de-escalate though the market took some solace from the signing of the Phase 1 trade deal. Another set of bearish DOE stats put oil under pressure mid- week, with the US seeing another large build in refined product stocks.
Companies including the offshore driller Transocean Ltd. and Texas shale company Laredo Petroleum Inc. are seizing the opportunity to borrow. A glut of crude oil and natural gas suppressing prices of those commodities and stressing U.S. energy producers had left many assuming for much of last year that debt markets were closed to all but the oil patch’s strongest companies.
The oil strategists note potential upside to their oil demand forecasts, particularly for 2H’20 given reports Phase 2 discussions and potential tariff rollbacks are underway, ahead of earlier expectations. Focus shifts back to global crude oil demand as geopolitical tensions subside.
Although they see limited evidence of a sharp upswing in oil demand growth currently taking place in China, the prospect of further tariff rollbacks would be supportive of EM oil demand growth in 2020.
Trade recommendations: The crude oil strategists remain long ICE Brent Aug’20 on constructive fundamentals, seeing value at current market pricing.
We advocated derivatives trades on crude oil, we wish to continue them on hedging grounds. The strategy reads this way: Maintain longs in CME WTI futures of January’2020 month deliveries. While on trading recommendations, we went long Brent Aug’20. Courtesy: WSJ & JPM