Oil Inventories as a Catalyst for Breaking Resistance
Event driven volatility is nothing new in commodity trading. Position traders thrive off post-announcement drift action, and while Wall Street continues to supply them with their needed dose of earnings reports, we shouldn't neglect the weekly available economic indicators that grant us so many setups for great trades.
United States crude oil inventories are published on a weekly basis by the Energy Information Administration. The level of inventories greatly influences the price of all petroleum products, which in turn affect other foreign exchange assets.
If you're not using U.S. Crude Oil inventories in your energy strategies - are you really trading oil then or are you just gambling ? In the chart you can see just what a catalyst these reports have been in the past. However, we can't attribute all price action to these reports alone; supply is only one part of the equation, and demand we gauge by the daily and hourly news updates that we form from whatever is thrown at us.
In this case we have a very interesting set-up.
From the technical perspective we see that since 18/07 oil couldn't find a new bottom, and gently started making higher-lows - ultimately dropping back down to its $56 support. There is no obvious sign that oil should continue it's descent to winter '18 levels, nor do fundamentals suggest anything close. In fact if we look at the relative volatility index (a volatility proxy similar in design to RSI), we can see that volatility has been mostly flat for the last two weeks, with little indicating further devaluation - but an assurance for a potential take breakout attempt is evident in the compression of the last 10 candles.
On a fundamental level we're looking at quite a few catalysts that could potentially mint some gains on a long position.
The ECB is considering rate cuts that could bring stimulus to a stifling European economy. The Fed has been in discussion of rate cuts for weeks. Global rate cuts could provide a nice monetary stimulus and support global trade. These looser conditions translate into bullish prospects for oil - mostly as a result of the actions of the Fed. With crude denominated in dollars, a rate cut with effectively weaken the dollar (rate cut = smaller cost of borrowing = dollar is cheaper), thereby making the asset far more available to global buyers.
At the same time we have several political developments that greatly affect the global supply of oil. Tension in the Strait of Hormuz have still failed to deescalate. Further rising tensions, or a - not unforeseeable, but unlikely - blockade of the narrow shipping lane, could point to further gains. As a result Saudi Arabia and Kuwait have already expressed a sense of urgency in regulating this supply by exploring resuming oil production within the Saudi-Iraqi neutral zone.
Overall; we see a potential for upside on technical level, with weekly inventories presenting great opportunity for volume driven growth, however traders should be cautious in evaluating fundamentals as multiple stakeholders aim to secure their own interests in the face of political instability.
This weekend may present further information that would affect energy futures come Monday. Morpher presents a trading solution that allows users to trade in after-hours and pre-market - including weekends. Check out more information about Morpher on our profile.
Useful further reading:
Oilprice.com
Reuters
United States crude oil inventories are published on a weekly basis by the Energy Information Administration. The level of inventories greatly influences the price of all petroleum products, which in turn affect other foreign exchange assets.
If you're not using U.S. Crude Oil inventories in your energy strategies - are you really trading oil then or are you just gambling ? In the chart you can see just what a catalyst these reports have been in the past. However, we can't attribute all price action to these reports alone; supply is only one part of the equation, and demand we gauge by the daily and hourly news updates that we form from whatever is thrown at us.
In this case we have a very interesting set-up.
From the technical perspective we see that since 18/07 oil couldn't find a new bottom, and gently started making higher-lows - ultimately dropping back down to its $56 support. There is no obvious sign that oil should continue it's descent to winter '18 levels, nor do fundamentals suggest anything close. In fact if we look at the relative volatility index (a volatility proxy similar in design to RSI), we can see that volatility has been mostly flat for the last two weeks, with little indicating further devaluation - but an assurance for a potential take breakout attempt is evident in the compression of the last 10 candles.
On a fundamental level we're looking at quite a few catalysts that could potentially mint some gains on a long position.
The ECB is considering rate cuts that could bring stimulus to a stifling European economy. The Fed has been in discussion of rate cuts for weeks. Global rate cuts could provide a nice monetary stimulus and support global trade. These looser conditions translate into bullish prospects for oil - mostly as a result of the actions of the Fed. With crude denominated in dollars, a rate cut with effectively weaken the dollar (rate cut = smaller cost of borrowing = dollar is cheaper), thereby making the asset far more available to global buyers.
At the same time we have several political developments that greatly affect the global supply of oil. Tension in the Strait of Hormuz have still failed to deescalate. Further rising tensions, or a - not unforeseeable, but unlikely - blockade of the narrow shipping lane, could point to further gains. As a result Saudi Arabia and Kuwait have already expressed a sense of urgency in regulating this supply by exploring resuming oil production within the Saudi-Iraqi neutral zone.
Overall; we see a potential for upside on technical level, with weekly inventories presenting great opportunity for volume driven growth, however traders should be cautious in evaluating fundamentals as multiple stakeholders aim to secure their own interests in the face of political instability.
This weekend may present further information that would affect energy futures come Monday. Morpher presents a trading solution that allows users to trade in after-hours and pre-market - including weekends. Check out more information about Morpher on our profile.
Useful further reading:
Oilprice.com
Reuters
Comment:
Looks like everything went according to plan ! At least 3% of upside on the trade.