In this week’s case study, we analyse a long position on Micro WTI Crude Futures (February) with a potential target of $82.30/barrel and a stop loss at $67/barrel, yielding a reward to risk ratio of 1.15.
Last week, we delivered a case study with a short position on WTI Crude Oil futures with entry at $77.80/barrel and exit at $73.65/barrel. This worked as planned with the target price being triggered within two days.
Now with price trading at $74.10/barrel and strong support between $67-$72/barrel, this case study argues that this presents an interesting opportunity to enter into a long position in WTI Crude Oil futures.
Bolstered by demand from China which is expected to recover, a long position in Crude Oil Futures provides us hedge in the medium-long term against limited downside risk.
Replenishment of US Strategic Petroleum Reserve (S PR)
The Biden administration is reported to replenish its S PR between the price range of $67-$72/barrel. WTI Crude is currently trading in that price range which could trigger S PR replenishment.
More than 200 million barrels has been drawn down to supplement the demand for US crude oil amid high international prices. However, it is worth noting that according to the US Department of Energy, there are no active purchase offers yet.
China Easing COVID Curbs
Last week, China announced the most significant relaxation of its COVID curbs since the pandemic first erupted three years ago. Rules covering quarantine times, movement of people, and lockdown as well as testing were eased in the country. Nevertheless, COVID cases in China remain high. Although official numbers have fallen to a monthly low, straining medical infrastructure points to high level of infected cases.
China is the second largest consumer of Crude Oil in the world, although they have largely been buying Russian Crude Oil at a discount, as demand increases, it will likely spill over into purchases of international oil as well impacting prices of Crude Oil.
Fed Rate Decision
All eyes are on the US Federal Reserve’s interest rate decision due on December 14th. According to the CME FedWatch tool, there is a 75% probability of a 50-bps (0.5%) rate hike at this meeting, slowing from the record 75-bps rate hikes announced at previous four meetings.
Over the past two weeks, economic data points to limited impact of Fed rate hikes leading to fears that the Fed may continue with 75-bps rate hike.
Tanker Delays
Over the past week, several tankers carrying Russian crude oil were halted at the Turkish strait due to confusion surrounding the G7’s imposed sanctions on Russian crude tanker insuranc e.
As of Monday, this jam started to be cleared. However according to a Bloomberg report, some 12 tankers had still not submitted the necessary documents confirming insu rance liabilities. As these delays might take more time to resolve, this might positively impact demand for WTI Crude Oil.
EIA Short Term Energy Outlook
The US Energy Information Administration (E IA) released its short-term energy outlook last week in which they stated that refinery utilization for 2023 was expected to remain at a five-year high.
Although this will lead to lower prices for distillate and other petroleum products, it ensures high demand for WTI Crude leading to a strong price support.
Technical Signals from the COT Report
WTI Crude is currently trading at $70.67/barrel, which is right below its S1 support according to the Pivot indicator which stands at $71.48/barrel. The range of $67-72 provides strong support as mentioned before. Both RSI and Stochastic indicators point to oversold which could indicate a recovery in the short term.
In the latest Commitment of Traders (COT) report from December 6th, we can see that money moved out of swap positions to directional positions. Long positions held by managed money increased sharply by 11.9%.
Overall long position OI increased by 4.4%. Still, this was on par with the increase in short position OI which also increased by 4.4%. Short OI saw producer positions increase far more than long OI.
Trade Setup
CME’s NYMEX Micro WTI Crude Futures provide exposure to 100 barrels of WTI crude oil. They have a maintenance margin of $750 at the time of writing and provide a cost-efficient way of getting exposures to the movements in Crude Oil prices.
Long Position on CME NYMEX Micro WTI Crude Futures – February 2023 Contract
Entry: $74.10/barrel
Take Profit Target 1: $85.00/barrel
Take Profit Target 2: $82.30/barrel
Stop Loss: $67.00/barrel
Establishing a long position on Micro WTI Futures (February) with an entry price of $74.10/barrel with a potential take profit target of $82.3 could provide exposure to a recovery in a WTI crude prices. This would yield 109.3% returns or $820.
A stop loss at $67.0/barrel could protect against a further downward move. This is placed at the lower end of the expected range of S PR replenishment which is expected to provide strong support. The stop loss, if triggered, would lead to a loss of $710 or 94.6%, providing a reward risk ratio of 1.15. Alternatively, holding the position until the second target of $85/barrel would yield $1,090 in profit or 145.3%.
CME’s full-size NYMEX WTI futures provide exposure to 1,000 barrels of WTI crude with a maintenance margin of $7,300 at the time of writing and provide improved liquidity in case of larger positions.
MARKET DATA
CME Real-time Market Data help identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/gopro/
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or particular needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of the future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk.
These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
Last week, we delivered a case study with a short position on WTI Crude Oil futures with entry at $77.80/barrel and exit at $73.65/barrel. This worked as planned with the target price being triggered within two days.
Now with price trading at $74.10/barrel and strong support between $67-$72/barrel, this case study argues that this presents an interesting opportunity to enter into a long position in WTI Crude Oil futures.
Bolstered by demand from China which is expected to recover, a long position in Crude Oil Futures provides us hedge in the medium-long term against limited downside risk.
Replenishment of US Strategic Petroleum Reserve (S PR)
The Biden administration is reported to replenish its S PR between the price range of $67-$72/barrel. WTI Crude is currently trading in that price range which could trigger S PR replenishment.
More than 200 million barrels has been drawn down to supplement the demand for US crude oil amid high international prices. However, it is worth noting that according to the US Department of Energy, there are no active purchase offers yet.
China Easing COVID Curbs
Last week, China announced the most significant relaxation of its COVID curbs since the pandemic first erupted three years ago. Rules covering quarantine times, movement of people, and lockdown as well as testing were eased in the country. Nevertheless, COVID cases in China remain high. Although official numbers have fallen to a monthly low, straining medical infrastructure points to high level of infected cases.
China is the second largest consumer of Crude Oil in the world, although they have largely been buying Russian Crude Oil at a discount, as demand increases, it will likely spill over into purchases of international oil as well impacting prices of Crude Oil.
Fed Rate Decision
All eyes are on the US Federal Reserve’s interest rate decision due on December 14th. According to the CME FedWatch tool, there is a 75% probability of a 50-bps (0.5%) rate hike at this meeting, slowing from the record 75-bps rate hikes announced at previous four meetings.
Over the past two weeks, economic data points to limited impact of Fed rate hikes leading to fears that the Fed may continue with 75-bps rate hike.
Tanker Delays
Over the past week, several tankers carrying Russian crude oil were halted at the Turkish strait due to confusion surrounding the G7’s imposed sanctions on Russian crude tanker insuranc e.
As of Monday, this jam started to be cleared. However according to a Bloomberg report, some 12 tankers had still not submitted the necessary documents confirming insu rance liabilities. As these delays might take more time to resolve, this might positively impact demand for WTI Crude Oil.
EIA Short Term Energy Outlook
The US Energy Information Administration (E IA) released its short-term energy outlook last week in which they stated that refinery utilization for 2023 was expected to remain at a five-year high.
Although this will lead to lower prices for distillate and other petroleum products, it ensures high demand for WTI Crude leading to a strong price support.
Technical Signals from the COT Report
WTI Crude is currently trading at $70.67/barrel, which is right below its S1 support according to the Pivot indicator which stands at $71.48/barrel. The range of $67-72 provides strong support as mentioned before. Both RSI and Stochastic indicators point to oversold which could indicate a recovery in the short term.
In the latest Commitment of Traders (COT) report from December 6th, we can see that money moved out of swap positions to directional positions. Long positions held by managed money increased sharply by 11.9%.
Overall long position OI increased by 4.4%. Still, this was on par with the increase in short position OI which also increased by 4.4%. Short OI saw producer positions increase far more than long OI.
Trade Setup
CME’s NYMEX Micro WTI Crude Futures provide exposure to 100 barrels of WTI crude oil. They have a maintenance margin of $750 at the time of writing and provide a cost-efficient way of getting exposures to the movements in Crude Oil prices.
Long Position on CME NYMEX Micro WTI Crude Futures – February 2023 Contract
Entry: $74.10/barrel
Take Profit Target 1: $85.00/barrel
Take Profit Target 2: $82.30/barrel
Stop Loss: $67.00/barrel
Establishing a long position on Micro WTI Futures (February) with an entry price of $74.10/barrel with a potential take profit target of $82.3 could provide exposure to a recovery in a WTI crude prices. This would yield 109.3% returns or $820.
A stop loss at $67.0/barrel could protect against a further downward move. This is placed at the lower end of the expected range of S PR replenishment which is expected to provide strong support. The stop loss, if triggered, would lead to a loss of $710 or 94.6%, providing a reward risk ratio of 1.15. Alternatively, holding the position until the second target of $85/barrel would yield $1,090 in profit or 145.3%.
CME’s full-size NYMEX WTI futures provide exposure to 1,000 barrels of WTI crude with a maintenance margin of $7,300 at the time of writing and provide improved liquidity in case of larger positions.
MARKET DATA
CME Real-time Market Data help identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/gopro/
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or particular needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of the future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk.
These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
Trade closed: target reached:
We suggested a long position on WTI crude futures on December 13th. Since Jan 5th, crude oil price rallied on China reopening led optimism. On the 24th of January, WTI prices hit a high of $82.51 which is above our first target of $82.3. This led to a profit of $820, and an ROIC of 109.3%.
Full Disclaimer - linktr.ee/mintfinance
