We think this is nothing but "demand supply equation seems heading a rampant", as per the US department of energy, demand during end of 2015 was weaker than at any time in more than ten years, and was 9.3% down on the YoY basis in the past four weeks.
The uncommonly mild climate was no doubt responsible and china being a second largest consumer of crude and their meltdown has caused very adverse impact on demand. As a result, the evident 5.1 million barrel decrease in crude oil stocks could do little to offset this.
US crude futures plunged more than 5% to a low of $32.10 per barrel, the lowest since late 2003, before bouncing slightly to $32.97.
Technical glimpse: The technicals for this commodity suggest nothing but sell indications.
Downtrend of this commodity has been in line with the conformity to the huge volumes.
It has made sloping channel where 21DMA is serving as a resistance.
Currently prices heading towards channel baseline which we see it as a support zone.
RSI still signaling downward convergence with the slumping prices (currently daily RSI trending at 38.6891 while articulating).
While slow stochastic approached below 20 levels but there is no trace of bullish crossover, so overall we don't see any sort of strength in this commodity that can pull back from current levels.
We spotted out the series bearish candles like dojis and current price has fallen below moving average curve.
Hedging Recommendation:
Contemplating prevailing downtrend of WTI crude, construct strategy as shown below,
Spot WTI oil is currently trading at around $32.88, the hedger who still perceives bearish trend on this commodity can execute 2:1 put back-spread by shorting a near month 4D (2%) In the money -0.49 put (strikes at 32.80) and buying 2 lots of near month same 2W (2%) Out-Of-The-Money -0.42 delta puts (strikes at 44.57) each for the net credit to enter the trade, (expiries in the diagram are only for demonstrated purpose, use expiries as stated above.
Alternatively, Light Sweet Crude Oil (WTI) futures and options are the world's most actively traded energy product, we recommend shorting near month futures.
If puts are overpriced relative to calls, the arbitrager would sell a naked put and offset it by buying a synthetic puts. Similarly, vice versa when you think calls are getting overpriced in relation to puts.


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