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FxWirePro: Deploy ICE Brent and NYMEX WTI Spreads on Crude’s Demand Supply Equation

Crude prices continue to account bullish streaks from OPEC’s supply cut news. Meanwhile, the drop-off in oil flows from Venezuela generates opportunities for other sovereign producers to short their hefty crude positions, however, nations like Canada struggles to be the beneficiary of such circumstance.

On the flip side, we expect US production growth to decelerate m/m in 1H’19 due to a slowdown in completions. The recent collapse in oil prices further supports our initial assumption, which was based on logistical constraints and capital discipline. Hence, we are supportive US light crude at the front end, but we believe any support to oil in the front end of the curve would cause the structure of the curve to flip into backwardation as producers will plan for a surge in production toward end of 2019/early 2020 by hedging at the back end of the curve, and oil flow will be less constrained as new pipeline capacities come online. Any slowdown in US production would also incentivize investors. Additionally, the curtailments in Canada have clearly increased the pull for WTI molecules when the seasonal demand is not met by the Canadian molecules, which is likely to be the case for at least a few more months ahead of us. Hence this will remain a tactical trade. 

For the reason described above, we reckon that the WTI would be well cushioned in the months ahead as Saudi Arabia is also reducing crude exports to the US strategically to reduce US inventories.

Stay long NYMEX WTI June 2019 and short ICE Brent June 2019 at -$7.97/bbl. The target of -$5/bbl and stop loss of -$9/bbl. Marked to market on 07 Feb at -$7.91/bbl for a profit of $0.10/bbl. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -95 levels (which is bearish), while hourly USD spot index was at 50 (bullish) while articulating (at 12:09 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex

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