FXTM information and reviews
FXTM
95%
OctaFX information and reviews
OctaFX
94%
XM information and reviews
XM
93%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
91%
HFM information and reviews
HFM
89%

With calls for $90 crude are we seeing a top emerge?


13 October 2021

With several oil analysts revising their Brent crude forecasts ever closer to $90, some more cynical market participants are asking whether that alone marks a near-term top in crude. The moves into $84.58 in Brent and $82.15 WTI crude are part of the bigger issue of rampant buying playing through the energy complex, driven by coal and gasoline futures, with shortages leading to questions around the response ahead of the Northern Hemisphere winter. A more positive feel about economic re-openings has also had some impact on the perception of demand. Although, what we’re seeing is predominantly a supply-side shock.

Daily chart of Brent crude

Inflation the key macro debate

More broadly, rising energy and food prices have been at the heart of the lift in inflation concerns with the IMF offering a warning to be “very, very vigilant” over rising prices – the group suggesting central banks act early should price pressures prove persistent. The Fed has started to respond more intently with Atlanta Fed President Raphael Bostic, a known hawk, saying inflation is broadening and is not transitory. Vice-chair Richard Clarida detailing that he sits in the transitory camp but sees upside risks to price pressures.

The risks to inflation have been a theme for weeks now in markets, and as always markets are two steps ahead of central banks. We’ve already seen rate hikes from a number of emerging market central banks, as well as in Norway and New Zealand, while the forward rates curves of many DM interest rate markets are pricing a series of further hikes.

We’ve seen a reasonable lift in various 2-year government bond yields as rate hikes get priced and this has influenced ‘carry’ in FX markets, promoting clear short covering in the likes of the AUD and attracting sellers of JPY as Japanese pension funds seek returns outside of domestic markets.

So, we’re at a very interesting point in the cycle – on one hand, most economists still see the supply side issues and bottlenecks abating in 2022, effectively clearing up one of the big issues that have boosted energy prices. Often the cure for higher prices is higher prices themselves as we see demand destruction and a belief in alternative sources – a factor that has partially boosted the crude price of late. On the other hand, trend-following funds (CTA’s) continue to buy strength and the bid remains in the market.

The possible response from OPEC

Moves in NG and coal aside, perhaps the real catalyst for a more aggressive decline should come from OPEC. Some are also watching output plans from US shale producers, and we watch the weekly DoE inventory data and the US rig count for more intel here – any view that US producers are to increase output should weigh on prices. However, with Brent at the highest levels since 2018 one does question if OPEC nations break rank and start to produce more than has been agreed, where discipline will be assessed in the 4 November OPEC meeting. Or, whether we see OPEC look to work as a collective, formally announcing a further group increase to monthly output levels.

If the market starts to believe this is the probability, then it should limit upside and bring out better sellers. Our own client flow in SpotCrude and SpotBrent is modestly net long, as is the case in NatGas. I’d certainly be watching NatGas (NG), as will be the case for other energy markets like coal futures as a leading indicator for crude. NG is now testing the August uptrend and a break here takes price to $5.00 and potentially the 50-day MA and lower Bollinger Band around $4.80 – A rally off the trend and it may keep the bid in crude prices.

Has the move gone too fast, too soon? One way to look at this is how far price has rallied from the 50-day moving average. In SpotCrude, we see the price at a 13.6% premium from the 50-day MA, which is above one standard deviation from the average seen since 2000. This is a level where we’ve typically seen price struggle to push higher from. That said, I’d be far more confident of trading SpotCrude short on a >15% premium – at this stage, SpotCrude prices would need to be above $82, so a further squeeze higher above here would offer an increased statistical probability of mean reversion short positions.

Models and statistical factors aside, we’ve seen indecision on the daily chart of spotcrude, with a Doji candle coming in after Monday’s fade. This doesn’t indicate a collapse but there is hesitancy to push prices higher here. The bull channel it held since 10 September remains intact, indicating at this point that buyers should support weakness.

#source

Share: Tweet this or Share on Facebook


Related

Gold traders appear hesitant
Gold traders appear hesitant

Gold finally broke out of the consolidation after being range bound for nearly 11 days. The correction to the downside was expected as gold traded in the overbought territory...

3 Feb 2023

Do safe haven currencies still exist?
Do safe haven currencies still exist?

At the end of last year, Swiss National Bank (SNB) President Thomas Jordan told news media that both the Swiss franc and the US dollar could be considered safe havens...

3 Feb 2023

USD Index appears bid and approaches 102.00 ahead of Payrolls
USD Index appears bid and approaches 102.00 ahead of Payrolls

The index looks to extend the post-ECB rebound. January Nonfarm Payrolls will take centre stage later. Other key data includes the ISM Non-Manufacturing...

3 Feb 2023

USD Index appears depressed post-Fed, breaches 101.00
USD Index appears depressed post-Fed, breaches 101.00

The index drops to 10-month lows near 100.80. The dollar remains on the defensive post-FOMC event. Initial Claims, Factory Orders next of note in the docket...

2 Feb 2023

Can The GER40 Keep Its Strength?
Can The GER40 Keep Its Strength?

As attention turns to the approaching Fed and ECB announcements, the GER40 index maintains stability near its best level since September last year...

2 Feb 2023

XAG/USD consolidates around 200-hour SMA, just above mid-$23.00s
XAG/USD consolidates around 200-hour SMA, just above mid-$23.00s

Silver stalls the overnight recovery move near the $23.70-80 support breakpoint. The technical setup warrants some caution before placing fresh directional bets...

1 Feb 2023


Editors' Picks

FXCM information and reviews
FXCM
87%
ActivTrades information and reviews
ActivTrades
86%
RoboForex information and reviews
RoboForex
85%
MultiBank Group information and reviews
MultiBank Group
84%
Libertex information and reviews
Libertex
83%
Vantage information and reviews
Vantage
83%

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.