Despite the OPEC and N-OPEC deals last year, the oil price is struggling to sustain the rally triggered by them as the market remains concerned of both the compliance to the deal as well as increased supply from non-OPEC countries like the United States, who are not bound by the deal. The oil price got a boost in early January when the news of compliance to the deal by the largest producer of oil in the Middle East Saudi Arabia hit the market, along by others like Qatar and Oman and WTI reached as high as $55.2 per barrel.

However, since then the market has become more concerned about the rise in the number of operating rigs and the increased production in the United States. For the very first time, since the deals in November and early December, the oil price is showing signs of major corrections. In addition to that, speculators have bought large amounts of oil contracts since the deal, the highest since 2014; if they liquidate some of the positions there could be a larger correction in the oil price.

Trade idea:

While we maintain our positive outlook on oil price and expect the WTI to reach as high as $59 per barrel first and then more towards $65 per barrel, we think there could be a correction pushing WTI prices to $46 per barrel. We don’t expect the long side call to stop out below $42 per barrel.