You can’t fight the trend….
Oil prices fell by around 1 percent on Tuesday, with Brent sliding below USD 70 and WTI below USD 60 per barrel, after U.S. President Trump put pressure on OPEC not to cut supply to prop up the market.
In the light of my comment last week, it seems like the market is oversupplied, even with all the sanctions against Iran, which has been shaded down a bit lately, there is almost 1.7 million bbl/day more in the production line since the summer, coming out from OPEC, Russia and US.
Yesterday, we saw Oil prices rose following an announcement by Saudi Arabia that it planned to cut oil production by 500.000 bbl/day in December in an attempt to boost prices, this has now been “twittered” down by President Trump.
It is difficult to give any advice on direction, the market is oversold and seems like the market is comfortable with prices in the range of USD 70-80, but with continuing production line and bearish statistical data, we could see another run down to USD 65 on Brent before they have to cut production to boost prices.
Last week I said a long position around USD 70 is worth trying, based on the technical picture, but with President Trumps agenda to hold prices low, I would wait for new signals.
Also note, yesterdays fall came amid a broad market selloff in Asia and before that on Wall Street, while the US dollar hit a 16-month high, making oil imports more expensive for any country using other currencies at home.
Power, the Nordic future curve climbed further on Tuesday, with front quarter Q1-19 contract hitting a fresh 2-monh high of EUR 52.85 EUR/MWh in early trade amid a dry weather outlook for the next 10 days.
This is extreme, the contract has gone more than EUR 6 since last week. If we don’t see this move in the near front (spot and week ahead), than we could have an equal return down, as the fundamentals in the Nordic are very healthy in regards to storage of water for the upcoming winter.
On the extreme side, we could see prices as low as 25 EUR/MWh during Q1-19 if a warm and wet winter, equally on the upside, we could see 80-100 EUR/MWh if a dry and cold winter.
My opinion is that the fundamentals are good and when the weather pattern shifts to a more normal to wet scenario, the downside could be large.
In the European gas market, we are seeing the same pattern as in power, drifted by below normal temperatures in the next weeks to come. Some traders are arguing that this could be short lived, as more supply will enter the market in form of LNG and we could also see a higher correlation to the oil market, which are holding a very strong bearish trend.
I will not take on any position today, as all the fundamentals vs. the technical picture are all in various direction. The direction could be clear, but to hold a position over time, stop loss could quickly be seen.
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