Renewed Optimism in Black Gold for 2020
Updated
WTI Crude oil ( USOIL) is up by 18% since the second week of October of this year and the technical picture indicates that there is another potential upside of 35% in the price of oil from the current levels but for that, we may have to first look at fundamentals to why I personally think, Oil may rally because Energy market is associated more basic economics (fundamentals) than technicals.
Fundamentals that are supporting oil
. As well all know, risk assets go in line with each other. Hence, the moves on a higher timeframe reflect the trends that have taken place in other asset classes respective.
. The move starts with Bonds -> Oil -> Equity Markets -> Commodity Sector -> FX. It is a slight conundrum mystery to figure out at first, but with backtests, once can see the moves and pattern that repeat again and again which is quite tangible with each other and this shows nothing but the investors' sentiment which is supported by Central Banks around the world.
. ZN1! (US 10-Y note Futures), US10Y, SPX, WTI all started their moves in the same week. In fact, ZN1! was first to react when the US Federal Reserve cut their interest for the first time after raising rates from last year. After that, they have just kept rates on hold in their consecutive meetings.
. Now, investors have to search for yields and there is no better place than going with the quarterly trend that is going on in the equity markets for the last 5 years.
. The entire year of 2019 has witnessed the US-China trade deal drama which was nothing but a discount to go with the analogy to buy the dips.
. Recently, OPEC and its allies pledged to cut nearly 2.1 mln bbl/pd of oil production in order to balance the supply in the market. This itself has given a boost of nearly 10% in the last two weeks.
. After that, we received latest data from China stating that their import has increased than their export which itself denotes that there is a growth within the country, However, we also need to check the upcoming Caixin Manufacturing data along with PMI`s that will support the bias that has been developed.
. The recent data from China has also helped the antipodean currencies i.e. AUD and NZD. AUD has been supported mainly also by the rise in iron ore price and since these countries are commodity export countries, we have also seen an appreciation AUD, NZD, and CAD from the same time period.
. CAD is supported by oil prices (not much recently but it has still helped ). All these factors have helped the commodity sector. Hence, we can see that Sugar, soybeans and other commodities have also started their rally along with minerals which as a whole bunch comes under one umbrella i.e. Commodity Sector.
. Saudi Arabia, being the largest producer of OIl has recently launched its state-owned and world's most profitable company, i.e. ARAMCO at its domestic exchange ( TADAWUL) in Riyadh where the share price of Aramco has risen by nearly 15% in just two trading days which has also taken its valuation to $2 trillion.
. Despite the cut in production, they are still able to sell oil at market price which is going higher and benefiting the company`s share price.
. However, the US and Russia have also pledged to fill the gap if there is any and rising oil prices is merely a hedge to US shale companies producing oil to sell faster at a discounted value that will also overall help to reduce the inventory and gradually help the Oil market.
. The demand from China and India will also increase in the coming months because of the infrastructure growth that is happening within each other country respectively.
. An increase in sugar price and soybean is because of the demand.
Hypothetically, if we consider then, we all need oil to move the logistics across the world. Hence, Oil is bound to rise on the renewed optimism in the growth for 2020 which is helped by Quantitative easing via Central Banks.
All I have tried to give is the basic pciture of how asset prices in each class is moving in line with respect to the reasons that is best known to me via economic data. Hence, I am anticipating the price and momentum to continue in the coming weeks.
Techinicals
. The technical picture is little tough as Oil is close to its resistance, but for High Probability trade, a break and weekly close above 60.50 would accelerate the move.
. Hence, a buy stop at 61 / 61.50 is a good area to enter because oil will entre into a new zone which has a minimum $ 15 range that can also exceed upto $19 / $20 (i.e $5 more ).
Buy : 61.50
S/L : 58
Target: 80
Expecting the move to start from the second week of 2020 and watch out from 4th week of March until April end as the price of oil always takes a massive push and there is also another reason associated with it as its a RAMADHAN season and production & supply is cut from the middle which inevitably creates a crunch in the market.
Please feel free to add your views in the comments as I am no expert but a mere chart reader and a fundamental enthusiast where I try to align both and create a hypothesis to anticipate the direction.
P.S. The last short call on Oil was missed by $3 target. However, I was able to grab a full $15.5 move from its peak.
Fundamentals that are supporting oil
. As well all know, risk assets go in line with each other. Hence, the moves on a higher timeframe reflect the trends that have taken place in other asset classes respective.
. The move starts with Bonds -> Oil -> Equity Markets -> Commodity Sector -> FX. It is a slight conundrum mystery to figure out at first, but with backtests, once can see the moves and pattern that repeat again and again which is quite tangible with each other and this shows nothing but the investors' sentiment which is supported by Central Banks around the world.
. ZN1! (US 10-Y note Futures), US10Y, SPX, WTI all started their moves in the same week. In fact, ZN1! was first to react when the US Federal Reserve cut their interest for the first time after raising rates from last year. After that, they have just kept rates on hold in their consecutive meetings.
. Now, investors have to search for yields and there is no better place than going with the quarterly trend that is going on in the equity markets for the last 5 years.
. The entire year of 2019 has witnessed the US-China trade deal drama which was nothing but a discount to go with the analogy to buy the dips.
. Recently, OPEC and its allies pledged to cut nearly 2.1 mln bbl/pd of oil production in order to balance the supply in the market. This itself has given a boost of nearly 10% in the last two weeks.
. After that, we received latest data from China stating that their import has increased than their export which itself denotes that there is a growth within the country, However, we also need to check the upcoming Caixin Manufacturing data along with PMI`s that will support the bias that has been developed.
. The recent data from China has also helped the antipodean currencies i.e. AUD and NZD. AUD has been supported mainly also by the rise in iron ore price and since these countries are commodity export countries, we have also seen an appreciation AUD, NZD, and CAD from the same time period.
. CAD is supported by oil prices (not much recently but it has still helped ). All these factors have helped the commodity sector. Hence, we can see that Sugar, soybeans and other commodities have also started their rally along with minerals which as a whole bunch comes under one umbrella i.e. Commodity Sector.
. Saudi Arabia, being the largest producer of OIl has recently launched its state-owned and world's most profitable company, i.e. ARAMCO at its domestic exchange ( TADAWUL) in Riyadh where the share price of Aramco has risen by nearly 15% in just two trading days which has also taken its valuation to $2 trillion.
. Despite the cut in production, they are still able to sell oil at market price which is going higher and benefiting the company`s share price.
. However, the US and Russia have also pledged to fill the gap if there is any and rising oil prices is merely a hedge to US shale companies producing oil to sell faster at a discounted value that will also overall help to reduce the inventory and gradually help the Oil market.
. The demand from China and India will also increase in the coming months because of the infrastructure growth that is happening within each other country respectively.
. An increase in sugar price and soybean is because of the demand.
Hypothetically, if we consider then, we all need oil to move the logistics across the world. Hence, Oil is bound to rise on the renewed optimism in the growth for 2020 which is helped by Quantitative easing via Central Banks.
All I have tried to give is the basic pciture of how asset prices in each class is moving in line with respect to the reasons that is best known to me via economic data. Hence, I am anticipating the price and momentum to continue in the coming weeks.
Techinicals
. The technical picture is little tough as Oil is close to its resistance, but for High Probability trade, a break and weekly close above 60.50 would accelerate the move.
. Hence, a buy stop at 61 / 61.50 is a good area to enter because oil will entre into a new zone which has a minimum $ 15 range that can also exceed upto $19 / $20 (i.e $5 more ).
Buy : 61.50
S/L : 58
Target: 80
Expecting the move to start from the second week of 2020 and watch out from 4th week of March until April end as the price of oil always takes a massive push and there is also another reason associated with it as its a RAMADHAN season and production & supply is cut from the middle which inevitably creates a crunch in the market.
Please feel free to add your views in the comments as I am no expert but a mere chart reader and a fundamental enthusiast where I try to align both and create a hypothesis to anticipate the direction.
P.S. The last short call on Oil was missed by $3 target. However, I was able to grab a full $15.5 move from its peak.
Note
still waiting for the absolute break of 61.50 to get exposure.
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