Opportunities & Risks For WTI In 2020
The CFTC COT positioning report showed that WTI traders increased their positions by 13,700 contracts last week, taking the total position in WTI to 550,077 contracts. Upside exposure has been steadily increasing over recent weeks reflecting a more encouraging environment for WTI in the wake of recent developments.
The positive impact of the US-Sino trade agreement has been felt immediately across risk markets, including WTI. With global manufacturing having fallen to its lowest levels since the global financial crisis over this year, there is hope now that there is an end in sight to the US-Sino trade war. The expected increase in global activity should translate into higher demand for WTI. However, the next stage of negotiations will be crucial and offers plenty of two way risk for WTI prices.
The issues yet to be dealt with between the US and China pose a much greater hurdle than the commitments made in the current phase of the deal. With risks that talks could stall and possibly even break down again, WTI traders are not out of the woods yet and will be monitoring the talks closely.
The path of the US Dollar will also be a key factor for oil in the near term. A continued decline in the dollar should help WTI stay north of $60. With the Federal Reserve on hold currently, though having kept the door to further easing open, the Dollar should stay under offer, helping demand for WTI. However, any upside surprises in US data pose the risk of a repricing of US rate expectations which could cause a spike higher in the Dollar, weighing on WTI prices.
However, if US-Sino trade negotiations continue to develop in a favourable manner, there is plenty of scope for WTI to continue to trend higher. The deepening of OPEC+ supply restrictions has helped to assuage some of the concerns over supply/demand imbalances in the market. With the current cuts due to expire by the end of March, OPEC should have a better view on how US-Sino negotiations are developing by then, before making a decision on whether to extend cuts. In all likelihood, a further extension is likely given the continued risks around subdued global demand, pending a pickup in global economic activity.
Traders waiting for the latest inventory data from the Energy Information Administration in the US will have to wait until tomorrow evening due to the holiday in the US. On the back of recent drawdowns, WTI bulls will be hoping for a similar reading this week which should keep WTI supported into the weekend.
Technical View
WTI Crude (Bullish, above $59.60)
From a technical viewpoint. WTI is holding near recent highs with longer-term VWAP still positive, prices are likely to continue higher. However, with momentum studies stretched to the topside there is room for some correction. Any retracement lower from here should find support into the monthly pivot at $59.60 with the yearly pivot below at $57.33.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!