FxWirePro: WTI crude retraces 50% Fibos of 2011 highs, on verge of hitting 3-1/2 year highs – Hedge via call spread of far-month tenors

The global crude prices surge on the US President Donald Trump pulled the United States out of an international nuclear deal with Iran. Trump's action ignited tensions in the Middle East and indecisiveness over global oil supplies.

Where WTI with the recent breakout and renewed trending bias keeps the focus on important resistance in the 70-72 target area. Currently trending upwards at 3 and a half years highs of $71.14 levels.

This zone includes the 50% retracement from the 2011 cycle high, as well as the equal swing target from the 2016 cycle low.

While the rally has thus far held this area, key initials support in the 66.60/55 area which represents the 38.2% retracement of the April rally and former high from March has contained pullbacks.

While intact, we continue to see upside potential. Note that a break above the 72 area would seek the 73.75 channel resistance from the 2016 cycle low.

The increased geopolitical risks and the recent message from the US producers highlighting some risks to the US supply in 2018 points to some risks to US and global oil market balances in the near term.

Given the still constructive view on oil prices in the coming months, we remain delightfully long in this energy commodity via a call spread on hedging grounds with a view to arresting further upside price risks. This is a cautious way to gain upside exposure to higher oil prices with limited downside.

Hence, ahead of EIA's inventory report which is likely to be announced shortly, we continue to advocate staying long in a December 2018 WTI $68-75/bbl call spread (net premium: $1.40/bbl). Marked to market on 25 April at $2.1/bbl, for an unrealized gain of 71¢/bbl, or 0.95% of the underlying.

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