Oil OPEC Thesis

11:03 AM

The market is quite bullish on oil after all oil has fallen very far very fast. From a technical analysis point of view, we can understand why some want to go long.

But looking at Quandl CFTC futures data shows that Money Managers are Long oil but producers are short. Producers being short means that the insiders of the oil industry know something that speculators do not.


Source: https://www.quandl.com/data/CFTC/CL_F_L_ALL-Commitment-of-Traders-Crude-Oil-Light-Sweet-Futures-Only-Legacy-Format-067651

The recent run up to above $50 could have been an artificial propping of the price due to Saudi Aramco increasing the price of oil in order to increase NAV of the bonds. However since their bonds have been recently priced, I suspect it was them that which kept the oil prices high.

All one needs to do is look at the Saudi Balance sheet to understand how dependent the OPEC countries are on the production of oil. I do not think they can keep production low. As the lowest cost producer of oil, there is no reason for them to not crush oil prices and meet their debt obligations.

If this is true, the next OPEC meeting in late May is likely to see production back up. I.E. I think they will not keep supply agreement.

Ideal Expression Bear Put/Call options spread - It will provide limited downside but also limited upside, but due to the high leverage available it might be better. One will have to look at the Theta Value to decide which expression is better.

Getting this entry using eToro is going to hard, but the date for OPEC is set. I went in today because I was initially expecting a bounce of some kind of support level. But two breaks in major supports was seen so there was no point in waiting for a bounce that may never come. So I entered the trade today.

I went in at $47 it is now at $46. My stop loss is breakeven.

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