FxWirePro: Snippets of Crude Oil and Hedge Brent via Options Combinations Ahead of EIA’s Inventory Inspection

Amid the US-Iran tensions in the Persian Gulf is revolving around, Brent crude oil prices, in less than four weeks, have risen to USD66.26/bbl from its USD59.46 lows in June. 

The attack on oil tankers and a US spy drone occurred in the Strait of Hormuz where much of the world’s oil supply passes through. The last thing the weak world economy needs now is an oil shock adding to global trade tensions. 

Speculative positions in crude oil markets have rebounded off 352k to 363k net long as of 18 June to halt a long liquidation run of 7 weeks. Coupled with the US-Iranian tensions, the bloodbath that engulfed energy markets now looks highly likely to have drawn to a close. There is space for longs to add to their positions at this level of non-commercial net specs and the alleged Iranian provocations are providing the catalyst for an upside rally.

Two key events are likely to shape the oil markets in the short-term: the outcome of the Trump-Xi meeting at the G20 late this week, and the OPEC+ meeting on 1-2 July, where members will decide on production cuts. A favorable outcome from the Trump-Xi meeting (i.e. no further tariffs on remaining Chinese goods plus amicable talks), 

Secondly, the OPEC deciding on further production cuts from existing levels may send Brent back up to the $70/bbl level. The market conditions from multiple angles – low spec position, geopolitical, economic and production – appear ripe for the bulls to return to the fore. Ahead of today’s EIA’s crude inventories, we expect further upside from crude oil prices in the short-term as it wrestles back losses from June.

Trade tips: In crude oil segment, we initiated a risk reversal strategy by going long in Brent Dec’19 10D call versus short Dec’19 10D put. They also went tactically short Brent-Dubai Q3’19 swap spread due to mounting risks from Iran sanctions. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards 47 levels (which is mildly bullish), while hourly USD spot index was at -8 (neutral), while articulating (at 13:49 GMT). 

For more details on the index, please refer below weblink:

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