FxWirePro: Keep Crude Risks On Check Ahead of EIA Inventory Check - Directional WTI Futures Strategy

The OPEC and EIA report today likely to provide fresh impetus for crude oil’s directional move; if the OPEC report shows that members have not kept up with the production cuts, there will possibly be heavy selling pressure on crude once more.

We expect US production growth to decelerate MoM in 1H’19 due to a slowdown in completions. The recent collapse in oil prices further supports our initial assumption, which was based on logistical constraints and capital discipline. 

Hence, we are supportive US light crude at the front end, but we believe any support to oil in the front end of the curve would cause the structure of the curve to flip into backwardation as producers will plan for a surge in production toward end of 2019/early 2020 by hedging at the back end of the curve, and oil flow will be less constrained as new pipeline capacities come online. Any slowdown in US production would also incentivize investors.

Additionally, the curtailments in Canada have clearly increased the pull for WTI molecules when the seasonal demand is not met by the Canadian molecules, which is likely to be the case for at least a few more months ahead of us. Hence this will remain a tactical trade.

Stay long NYMEX WTI June 2019 and short NYMEX WTI December 2019 spread at -$1.19/bbl in early January. The target of +$1/bbl and stop loss of -$2/bbl. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR is at -11 (mildly bearish), while USD is inching at 47 (which is bullish), at press time 11:02 GMT. 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex