Just a shot/medium-term trade idea.
Short Brent - market has been driven by OPEC announcements and future expectations and prices do no fully reflect fundamentals for the moment. Target: $50-$52
(1) Current fundamentals: bad
(2) Expectations: too much?
(3) Sentiment: contrarian
(4) USD: neutral
(5) Technicals: ok
Brent prices are currently at the top of the range of the 9 past previous months( This does not reflect the fundamentals.
(1) Current Fundamentals
Fundamentals are shaky. Production at historical highs from "old" producers (Saoudi Arabia, Russia) + new production coming quickly to the market (US, Nigeria,Iraq, Iran..).
US: increase in number of rigs
OPEC: production at historical highs
Middle East producers opened the taps, the IEA said. Saudi Arabia, Kuwait and the United Arab Emirates pumped at or near record levels and Iraq pushed output higher, according to the agency.
Russia: production at historical highs
(2) Too much expectations?
Yes there is a deal - so what? I know that OPEC and non-OPEC have agreed to around 2m b/d in production cut next year. BUT
This si for next year
This may not be fully respected
Even with this cut the market won't trim the glut before 2018-2019
Let's not forget: the OPEC deal which "guarantees" a certain stability, or floor in oil prices depend upon cooperation between the Saudis, Qatar, Iran, Russia, and Iraq (among others). Those countries are on opposite sides of Mid-East proxy wars.
(3) Sentiment: contrarian approach
Investors are currently holding record long positions (for the past 2 and a half year). Net long contract are above the 300 thousand threshold.
"Hedge funds increased wagers on rising WTI by 2.5 percent in the week ended Dec. 13, U.S. Commodity Futures Trading Commission data show, while shorts, or bets on lower prices, tumbled 30 percent to the lowest level since May."
contrarian stand: when everyone is buying and price is high: sell
possible long liquidation if catalysts (ex: data on supply and demand fail to live up to expectations). Investors will be cashing out and could amplify a potential downward move. Risk in the market have shifted to the downside.
(4) US Dollar
Nothing much for this week. I think there will be fewer volatility until January and it shouldn't have too much impact on oil prices for the coming period.
chars on OilTrading.blog if you want.
Would be happy to have any feedback/comment