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Crude oil prices today have gained the upside traction again after two days price dips. WTI crude is inching above $46 and Brent CFDs are shy above $48.30 on the back of the news that Saudi Arabia pledges to cut its exports and Nigeria says it will limit its production at 1.8M bbl/day, while OPEC grapples with growing threats to oil deal.
Brent futures have edged higher over the past week, with tightening balances supportive for prices in the short term.
However, while we retain a positive outlook for crude prices in the coming months, recent comments by Ecuador and Iraqi governments that they intend to push production higher increases the risk of the broader production agreement fracturing before its full term is completed.
Even while the pace of market tightening accelerates over the course of 3q'17, we see the risks of a domino effect toppling additional OPEC commitments as increasing over the latter part of the year and increases the downside risks to the $45/bbl average forecast for 2018.
Trade recommendations:
Long December 2017/December 2018 Brent time spread is advocated. We see better value in looking for curve flattening as tighter fundamentals compete with increased producer hedging the coming weeks as spot Brent prices flirt with $50-52/bbl and calendar 2018 WTI approaches $48-49/bbl. -
Go long December 2017/December 2018 Brent time spread on July 21, 2017 at -$1.82/bbl. Trade target is -$1.00/bbl.
