QuantumLogicTrading
Short

FADE OIL & BUY USDCAD - OPEC TO CUT OR TO NOT?

TVC:USOIL   WTI Crude Oil
Opec to cut or not to cut?

* I trade Oil             seldomly however this binary position caught my attention.*


1.This trade derives from my view regarding cartels - a view which follows the logic that they only work when the cartel makes an arrangement that is beneficial to all parties, wholly from a profit perspective.

2. Formal action             of Reducing output is unlikely to be welcomed by Iran/ Russia et al. who have recently been able to offer their produce to the market As above It only takes one party out of the 10/20 opec members for the whole agreement to fall through, a cartel does not work unless ALL parties agree since failiure to do so causes economic inequities which void business logic otherwise.

- thus this trade is a bet that one or more members will indeed fail to agree and thus void the output cut deal.

3. Fundamentally also being short here makes some sense since it is around 50-60USD that USD shales producers are able to enter the market thus prices above 50 incur a level of natural supply which acts as a price smoother. Furthermore the oil             rally from 40-50 was purely based on an OPEC cut. Fair equilibrium for oil             is in the region of 40-45USD imo             . Not to mention Fed hike risk and the USD topside are all welcomed downside drivers.

4. Technically oil             at 50usd is at some good resistance, whilst oil             vol             is at yearly lows. Vol             is likely to pick up as negotiations heat up, this may also see oil             trader better on the offer.

5. Lets not also forget that the main reason opec flooded the oil             market back in 2014 was in order to maintain their dominant position and prevent US shale. Thus it is even more questionable the legitimacy of this agreement (thus making it even more unlikely imo             ).

Trading strategy - short WTI Oil             at 50usd or on rallies above:

1. Short oil             above 50 running a 2:1 risk profile. 44TP is advised from a support perspective and stops could be placed at 52 just above cycle highs for 3:1 or more tactical positions at 53 for 2:1.

2. FX players may instead opt to trade $CAD. Entries here should look for above 1.34 with 200pips TP and 100pips of risk. This is perhaps a better way to express a FED hike view and dollar bid sentiment. Coupled with poor Loonie macro.
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