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Wednesday, February 25, 2015

Thoughts for Brent Crude oil around 60USD/bbl - trading idea

The week starts on Wednesdays because that is when the EIA weekly petroleum status report is issued. The report gives a detailed overview of how much crude is used in refining, and more important, gives a number for crude build/draw in/from storage.

This is one of the main fundamental pieces of the crude oil puzzle these days. The other pieces would be the Baker Hughes drilling count report on Fridays and the Iran-US discussions. Not to mention, the Ukraine-Russia situation, Lybia disruptions, increased demand from Asia and finally but not less important, delays in the loadings at Basra.

Now, you know exactly how to trade this crude oil, don’t you?

Well, I don’t, but I have a plan I am going to share with you.

From some time now, we have been buying on dips, that is, every time crude falls (especially on Wednesday), we buy and sell a few days later. However, since last week we have changed our views.

It looks like the market is more balanced. Demand has awakened in Asia, problems in Iraq loadings (long line of tankers waiting to be loaded), and some refinery problems here and there, plus maintenance. We see, from the technical side, that the market is failing to reach new highs and it looks like it might get stuck on a 57 – 63 range. Basically +/- 3 dollars around 60.

Crude oil benchmarks, call it Brent or WTI, have a tendency to muddle around big round numbers. On Brent, we spent and average time of 8-9 trading days at  80/70/60 on the way down. The exception was  85 where we stayed 19 days before moving towards 80. We also spent about 14 trading days around 50.

We have started to visit the 60 level (+/-3) . We have been there for 10 days. Are we about to move sharply?  If so, where to?
I am not in the business of predicting anything, therefore I am simply selling 63 and buying 57ish, with room, so 62 and above I start to sell, 58.5 and below I start to buy. This is the plan, to milk the range until it is exhausted. The problem now is that I think there are more bearish fundamentals out there, but the technical picture seems bullish. I will lose one of these days, so my stop loss is entered every time I enter my trades 63.5 when selling and 56.5 when buying.