Trade alert - going long WTI crude oil
I’m going long WTI crude oil via the Mar 2023 CL contract here at 75.18, with a stop at 69.69.
Oil has been a tricky commodity to trade over the last three months. It has a lot of things going for it - the China reopening, weakening dollar, and lack of meaningful growth in US and OPEC supply despite last year’s high prices. Despite those bullish factors, it has been a laggard, stuck in a sideways market due to fears over a US recession.
If you read my last post, you’ll know that my concerns about a recessionary regime happening in the near term are fading. We are more likely to see a stabilization in economic data, while growth outside of the US could actually heat up, and this should be good for risky assets. If I end up being correct, then oil has no business trading at the same levels when the world was worried about a recession and deflationary bust.
From a technical perspective, the front CL contract undercut the Jan 5 low of 72.46 by 21 pips and then recovered. This makes me feel like we have a chance of holding support and retesting the upper end of the range at 8. If the global economy does pick up from here, we could reach the Oct/Nov highs of 92, delivering a 3x on risked capital.
There are also some right-tail risks that would trigger a sharper rally from here. First would be the US deciding to refill its Strategic Petroleum Reserve, which has been used to provide supply to the market but has now been drained to historical levels. There has been unconfirmed talk about the US bidding around $69-72, but they haven’t bought anything in meaningful size yet. This potential demand puts a floor beneath current prices. Second would be tensions between Iran and Israel flaring up (or Russia/Ukraine), reintroducing some geopolitical risk premium in oil markets.
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