FxWirePro: US crude inventory checks likely cushioned temporarily, hedge further slumps of WTI oil with backspreads

On the verge of US crude inventory level checks, WTI crude futures (CL1!) today was attempting to break resistance at 46.41 levels as the number of rigs drilling for oil in the U.S. increased by five last week to 664, the second straight weekly gain, as per the industry research group Baker Hughes.

But on Wednesday's government report was expected to show that U.S. crude oil stockpiles fell by 1.5 million barrels last week, while gasoline stockpiles were forecast to decline by 0.5 million barrels. So this ambiguous information from both the sources keeps commodity traders puzzled.

As shown in the diagram we think crude futures is taking resistance at 46.41 levels with unconvincing volumes which means buying interest at this level is not seen (supply is more than demand), so any breach above 46.41 levels on closing basis along with substantial volume confirmation may provide little strength in short run, otherwise we've been firm on our earlier targets 42.22 levels in medium trend.

Contemplating prevailing downtrend of WTI crude, construct strategy as shown below,

Spot WTI oil is currently trading at around $46.13, the hedger who is bearish on this commodity executes 2:1 put back-spread by shorting a near month 7D (3%) In the money put (strikes at 47.66) and buying 2 lots of near month same 15D (-3%) Out-Of-The-Money -0.42 delta puts (strikes at 44.57) each for the net credit to enter the trade.