Good Morning,
Oil is breaking higher closing above the 50 day exponential moving average (EMA) for the first time since October when it made 4 year highs. This should support long NOK and CAD positions. Looking to add to our short EURNOK positions on retracements towards 9.8000.
Oil is breaking higher closing above the 50 day exponential moving average (EMA) for the first time since October when it made 4 year highs. This should support long NOK and CAD positions. Looking to add to our short EURNOK positions on retracements towards 9.8000.
The model focuses on the last 3 years of data, and based on statistics and technicals over a 3 year chart 9.4000-9.5000 region looks to be a good price target.
However looking at the much bigger picture, we think this could be a multi-year trade with returns well into double digits.
From a fundamental viewpoint, the short EURNOK position makes sense from the perspective that NOK was oversold on the back of Brent Crude coming off from USD 86 dollars a barrel in October to 40 USD a barrel in December (now sitting at 60). Our central view is that below 50 USD a barrel, US shale production is cash flow negative and we can expect OPEC to cut supply in order to maintain the price.
The trade war, initial increased output by the Saudis and the US in response to sanctions on Iran and Venezuela, and fears of a global slowdown have driven Oil prices down. Now the price is correcting as a result of what was a supply over reaction to trade sanctions.
Furthermore consider the elasticity of demand vs the elasticity of supply. In the short run there are very few substitutes for oil and so global demand will not vary greatly in response to price changes. The same cannot be said for supply however.