WTI Crude Oil Tests Major Support — Will Buyers Step In?Market Structure
WTI Crude Oil remains within a broader range-bound structure after failing to sustain its recent recovery. The latest decline has erased much of the previous advance and pushed price back toward an important support zone. Momentum currently favors sellers, but the market is approaching an area where buying interest could emerge.
Market Sentiment - Moderately Bearish
Short-term momentum remains negative as lower highs and lower lows continue to develop. However, price is approaching a technical support area where bearish momentum may begin to slow.
Bullish Scenario
If buyers defend the first support and reclaim the first resistance, downside pressure could fade and trigger a recovery toward the second resistance, suggesting that the recent decline was only a corrective move within the broader range.
Bearish Scenario
If price breaks decisively below the first support, selling pressure could accelerate and expose the second support, confirming that bears remain firmly in control.
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Market Outlook
WTI has experienced a sharp decline after failing to hold above recent swing highs. The current move has brought price back into a key demand zone where market participants will closely watch for either a stabilization or another wave of selling. The next directional move will likely depend on whether buyers can successfully defend current support.
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Key Levels
First Resistance 81.50
Second Resistance 83.00
First Support 80.00
Second Support 78.80
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Future Scenarios
A sustained move above 81.50 would signal improving bullish momentum and could open the path toward 83.00, indicating that buyers are regaining control.
However, if price falls below 80.00, bearish momentum could strengthen further and increase the probability of a decline toward 78.80.
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Please share your view below:
Do you think WTI will rebound from the current support zone, or is this decline only beginning?
More market structure and key level updates will be shared regularly. WTI Crude Oil 4H — Bullish Structure & Key Resistance LevelsWTI Crude Oil 4H — Candle-by-Candle Market Structure Analysis
This educational chart explains the complete price journey of WTI Crude Oil through market structure, liquidity, support and resistance, demand and supply zones, and reaction areas. Each candle should be read in relation to the candles before it rather than in isolation.
1. Initial Bullish Development
Price begins with accumulation near the lower levels. Small candles show hesitation, followed by stronger bullish candles. Buyers gradually gain control as price creates higher highs and higher lows. The bullish candles confirm increasing buying pressure.
2. Break of Structure (BOS)
As price breaks above the previous swing high, the structure becomes bullish. The breakout candle demonstrates that buyers have enough momentum to overcome the previous resistance. The following candles help confirm that the breakout is not immediately rejected.
3. Strong Bullish Expansion
A series of consecutive bullish candles pushes price higher. These candles show strong momentum and limited selling pressure. The expanding range indicates that buyers are aggressively participating in the move.
4. Formation of the Major High
Price reaches the upper area around 91.19–93.50, where previous buying momentum begins to slow. Smaller candles and upper wicks indicate hesitation. This area is therefore treated as a major resistance and supply zone.
5. Consolidation Near Resistance
Price moves sideways beneath the major resistance. The repeated inability to break higher shows that sellers are defending the upper zone. This consolidation is important because it can precede either a breakout or a rejection.
6. Current Price Reaction
The current price around 86.48 is positioned below the major resistance. The candles are showing a reaction from the upper area, so traders should watch whether price continues higher toward 91.19 or begins a deeper retracement.
7. First Important Support — 82.81
The 82.81 level represents the first major support area. If bearish candles appear from the resistance zone, this level becomes the first area where buyers may attempt to defend price.
8. Second Support — 75.99
A stronger bearish continuation could move price toward 75.99. This zone represents a deeper support area and should be monitored for a potential bullish reaction.
9. Final Support — 70.84
The 70.84 region is marked as a strong lower support area. A reaction here would indicate that buyers are defending the broader structure. A decisive break below this area would weaken the bullish scenario.
Educational Conclusion
The chart demonstrates how individual candles combine to create market structure. Strong bullish candles show momentum, smaller candles show consolidation or hesitation, and rejection candles can identify areas where opposing pressure is entering the market. The key levels are 91.19–93.50 resistance, 82.81 first support, 75.99 major support, and 70.84 strong support.
The main lesson is to avoid judging a single candle alone. Always study the candle's location, previous structure, momentum, wick rejection, support/resistance, and surrounding price action before forming a market bias. This chart is for educational and technical-analysis purposes only. WTI: Strait Remains Closed, Demand Shock Setup to Consider!Hello There,
welcome to my new analysis of WTI from a daily timeframe perspective. As I predicted previously, WTI was likely to visit the lower levels, initially increasing with supply. This offered a solid signal on the short side. The trade happened, and the targets were reached. Now, crucial developments about the global oil markets are ongoing. The catalyst for oil price shocks is the Strait of Hormuz, which remains closed. Therefore, the bullish side should not be underestimated.
The throughput through the Strait is 3% of the pre-crisis level, and war-risk insurance rose tremendously. At the moment, it is at a record-high of 8.0x war-risk insurance. As the insurance for transshipping through the Strait rises enormously, this leads to higher demand for oil approaching decreased supply. Through this situation, higher oil prices will inevitably be seen if the Strait remains closed over the upcoming times.
Technically, this means that WTI is currently trading in this decisive descending channel formation. Within this formation, WTI forms the local descending wedge formation. If the Strait remains closed over the upcoming times and no deal is reached, the completion of the wedge and bullish breakout will be confirmed. Once the breakout above the upper boundary of the descending wedge emerges, the targets as seen in my chart are likely to be reached.
In this manner, thank you a lot for watching!
The support is highly appreciated.
VP WTI Crude Oil — Strong Rebound From the LowsWTI Crude Oil 4H — Strong Rebound From the Lows, But 74–76 Resistance Becomes the Next Major Test
1. Market Overview
WTI Crude Oil is currently trading around the 73.00–74.00 area after a strong rebound from the lower support zone near 67.00–68.00. The market had been under clear selling pressure for several weeks, but the latest recovery shows that buyers are starting to return from the lower range.
However, despite the sharp rebound, the broader structure has not fully turned bullish yet. Price is now approaching an important resistance area where sellers may try to defend the previous breakdown zone.
The key question is whether this rebound can develop into a stronger recovery, or whether WTI is simply retesting resistance before another move lower.
2. Market Structure
From a market structure perspective, WTI is still inside a broader bearish structure, but the short-term picture has improved.
The previous trend was clearly bearish, with price forming lower highs and lower lows from the higher range above 100.00. The decline accelerated after price broke below the 80.00 area and continued toward the 67.00–68.00 support zone.
The latest rebound from the lows is constructive, but it has not yet broken the bearish structure. For a more meaningful bullish shift, WTI needs to reclaim the 74.00–76.00 resistance zone and hold above it.
Until that happens, the current move should be viewed as a recovery attempt within a broader corrective trend.
3. Daily / 4H Multi-Timeframe View
On the 4H timeframe, WTI is showing strong short-term recovery momentum. Price has bounced sharply from the 67.00–68.00 area and is now testing the first major resistance zone.
From the broader daily perspective, the market still needs confirmation. The larger trend remains under pressure because price is still below previous breakdown areas. A daily close above 76.00 would improve the recovery outlook, while failure below this zone may keep the broader bearish structure intact.
In short, the 4H chart shows a strong rebound, but the daily structure still requires a confirmed breakout above resistance.
4. Key Resistance
74.00–76.00
This is the immediate key resistance zone. Price is now approaching this area, and sellers may react here because it was part of the previous breakdown structure.
78.00–80.00
If WTI breaks above 76.00, this becomes the next important upside target zone. A move into this area would suggest stronger recovery momentum.
84.00–86.00
This is the next major structural resistance zone. A sustained move above this area would be needed to confirm a broader bullish recovery.
5. Key Support
70.00–69.00
This is the nearest short-term support zone. Holding above this area would keep the current rebound structure alive.
68.00–67.00
This is the recent bottom and key demand zone. Buyers previously reacted from this area, so it remains an important support region.
65.00–64.00
This is the lower support zone. A clean break below this area would confirm renewed bearish pressure and open the door for a deeper decline.
6. Momentum & Volatility Check
Short-term momentum has clearly improved after the strong rebound from the lows.
The move from 67.00–68.00 to the 73.00–74.00 area shows that buyers have regained some control in the short term. However, momentum is now approaching a key resistance zone, so the next reaction will be important.
Volatility remains active. If price breaks above 76.00 with strength, recovery momentum may extend quickly toward 78.00–80.00. But if WTI rejects from 74.00–76.00, a pullback toward 70.00 or 68.00 may follow.
7. Bullish Factors
The first bullish factor is that buyers defended the 67.00–68.00 support zone and created a strong rebound.
The second positive sign is that price has recovered back above the 70.00 psychological level, which improves the short-term structure.
The third factor is that the rebound has been relatively sharp, suggesting that short-covering and fresh buying may be supporting the move.
A confirmed breakout above 76.00 would be the strongest signal that the recovery is gaining real momentum.
8. Bearish Risks
The main bearish risk is that WTI is now approaching the previous breakdown zone around 74.00–76.00.
If buyers fail to break above this area, sellers may use the rebound as a retest opportunity. A rejection from this zone would suggest that the broader bearish structure is still active.
A break below 70.00 would weaken the current rebound, while a move below 67.00–68.00 would suggest that the recovery has failed and that sellers are regaining control.
9. Bullish Scenario
If WTI holds above 70.00–69.00 and breaks above 74.00–76.00 with confirmation, buyers may push price toward 78.00–80.00.
If momentum remains strong above 80.00, the next upside target would be 84.00–86.00.
A sustained move above 86.00 would confirm a stronger recovery structure and weaken the broader bearish outlook.
10. Bearish Scenario
If WTI rejects from 74.00–76.00, short-term selling pressure may return.
A break below 70.00 could send price back toward 68.00–67.00. If this support zone fails, the recovery structure would weaken, and price may move lower toward 65.00–64.00.
As long as WTI remains below 76.00, sellers still have a strong argument in the broader structure.
11. Market Sentiment
Market sentiment is currently neutral with a cautious recovery bias.
Buyers have clearly reacted from the lower support zone, but the broader structure has not fully turned bullish yet. The market needs confirmation above 76.00 before the recovery becomes more convincing.
Above 76.00, recovery momentum may strengthen.
Below 70.00, short-term bearish pressure may return.
Below 67.00, the broader bearish structure may regain control.
12. Trading Plan Style Summary
Plan:
- Above 76.00: recovery momentum may strengthen.
- Between 70.00 and 76.00: resistance testing and consolidation may continue.
- Below 70.00: short-term bearish pressure may return.
- Below 67.00: the recovery structure may fail.
The key area to watch is 74.00–76.00. If buyers break this zone, WTI may extend toward 80.00. If sellers defend it, the rebound may turn into another lower-high retest.
13. Interactive Question
Will WTI Crude Oil break above 76.00 and continue toward 80.00? Or will sellers defend the 74.00–76.00 resistance zone and push price back toward 70.00–68.00?
Please share your view below. WTI Crude Oil Stays Heavy Near $70 — Base Building or Bearish CoWTI Crude Oil remains under clear bearish pressure on the 4H chart. After the strong decline from the previous upper range, price continued to form lower highs and lower lows, showing that sellers have been controlling the market structure for most of the recent move. The latest price action is now consolidating around the $69–$70 area, which makes this zone important for the next directional move.
From a market structure perspective, WTI is still in a bearish structure. The market has failed to reclaim the previous breakdown zones, and each rebound has been capped below key resistance. Although the decline has slowed near the current level, the sideways movement around $69–$70 still looks more like a weak consolidation after the sell-off rather than a confirmed bullish reversal.
The first key resistance zone to watch is around $70.50–$72.00. This is the nearest rebound area where sellers may continue to defend the upside. If buyers can break above this zone with confirmation, WTI may attempt a recovery toward $74.00–$75.50. A stronger recovery would require the price to reclaim the $76.00–$77.50 area, which was the previous reaction zone before the latest decline.
On the downside, the first key support zone is around $68.50–$67.50. This is the current lower consolidation area and the level buyers need to defend to avoid another breakdown. If price breaks below this zone, bearish pressure may increase again, and the next downside target could be around $65.00–$63.50.
For the bullish scenario, WTI needs to hold above $68.50–$67.50 and break above $72.00 with confirmation. If this happens, short-term recovery momentum may improve, and the price could move toward $74.00–$75.50. A sustained move above $77.50 would be needed to suggest that the bearish structure is starting to weaken.
For the bearish scenario, rejection from $70.50–$72.00 would show that sellers are still defending the rebound area. If the price then breaks below $67.50, downside pressure may return quickly, opening the path toward $65.00–$63.50. As long as WTI remains below $72.00–$75.50, rebounds may still be viewed as corrective moves inside a bearish structure.
Market sentiment remains bearish, but the price is now sitting near a short-term support area. This means volatility could increase around the $68–$70 zone. Right now, confirmation matters more than prediction: buyers need to reclaim resistance, while sellers need a clean break below support.
Above $72.00, recovery momentum may improve. Below $67.50, bearish continuation becomes more likely.
What do you think?
Will WTI defend the $68.50–$67.50 support zone and recover toward $74.00? Or will sellers break support and push crude oil toward $65.00?
Please share your view below. 
Short
EUR/USD: Geopol shock & inflation crossfire – off to 1.16?EUR/USD has plunged back into its previous triangle range, driven by a wave of safe-haven flows into the US Dollar. The escalation between the US, Israel, and Iran over the weekend, which led to the de facto closure of the Strait of Hormuz, has sparked a global energy shock. Because Europe is highly dependent on energy imports, this crisis is hitting the Euro harder.
Today’s Eurozone CPI release adds a wild card to the mix. With French inflation surprisingly hot last week, a similar European print could trigger short-term relief, while a cool print will align perfectly with the bearish geopolitical environment.
Key topics covered
- Safehaven dollar : The escalation in the Middle East and the disruption of oil transit through the Strait of Hormuz are damaging European growth prospects, while reinforcing the US Dollar's dominance.
- Triangle false breakout : The recent peak above the triangle appears to have been the final wave of an exhausted uptrend. Prices have now fallen below the 61.8% Fibonacci at 1.1768 and the 78.6% level at 1.1682.
- RSI momentum : The daily RSI has rejected the 50 centerline and is sliding toward 35, confirming that bears are firmly in control of the near-term trend, with more room towards 30.
EUR/USD scenarios & CPI impact
- Bearish (Geo/Macro alignment) : If today's Eurozone CPI comes in at or below expectations (1.7% headline, 2.2% core), the weakness aligns perfectly with the technical breakdown and the ongoing situation in the Middle East. The pair is highly likely to continue its slide toward the 1.1572 low (Wave E of the triangle). A break below this support opens the door to deeper medium-term declines toward 1.1472 and 1.1395.
- Bullish (Short-term relief) : If the CPI prints surprisingly hot (similar to the French data), we could see a short-covering bounce. Prices would need to reclaim 1.1682, with immediate targets at the top trendline of the triangle and the 1.1768 (61.8% Fib) resistance. However, unless the pair can break back above 1.1829 (50% Fib) or we see an unexpected geopolitical truce, any upside is likely to be short-lived.
Are you selling the Euro on the energy shock or speculating on a hot inflation bounce? Share your views in the comments.
This content is not directed to residents of the EU or UK. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice.
ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information. Short 
Managing Oil Price Uncertainty with Micro WTI StraddlesYou cannot predict the future, but you can prepare for it. This is even more true for crude oil prices. Forces driving and pulling back oil prices are in full play in parallel at the same time. Oil prices remain at the risk to both the upside and the downside concurrently.
Take this week as an example. WTI prices started with a rally extending a three-day uptrend of >7% following Fed’s hint at rate cuts plus heightened tensions between Israel and Hezbollah. The rally reversed as tensions eased. Crude oil prices crashed 3.8% over Tuesday & Wednesday on fears of feeble demand.
RATE CUTS AND GEOPOLITICAL TENSIONS DRIVE OIL PRICES HIGHER
The US Federal Reserve Chair Jerome Powell has signalled that the time to pivot was about now when speaking at the Jackson Hole Symposium last week on 23/Aug. This boosted optimism for oil prices, fuelling a rally reversing a price slump caused by weak Chinese economic data and disappointing US payroll revisions.
Chair Powell’s remarks lifted market sentiment, leading to gains in oil prices and the dollar weakening. A feeble dollar makes oil cheaper for non US consumers and can help increase demand pushing up oil prices.
Source: CME FedWatch Tool
According to CME’s FedWatch tool , there is a 67.5% likelihood of a 25 basis points (“bps”) rate cut and a 32.5% chance of a 50 bps rate reduction at the September FOMC meeting.
Sadly, the tensions in the Middle East continue to prevail. Last weekend, Hezbollah launched rockets and drones into Israel, prompting a swift response from Israel's military, which deployed around 100 jets to prevent a larger attack.
Adding to these factors are disruptions in oil production in Libya and Colombia.
The easing of tensions between Hezbollah and Israel reduced supply fears, with some speculating that Iran might view Hezbollah's missile attacks as sufficient retaliation.
Despite easing tensions, supply concerns persist in Libya threatening to reduce oil production by 1.2m bpd.
WEAKENING DEMAND AND OVER PRODUCTION COULD PULL OIL PRICES BACK
Concerns over weak oil demand from China, a global economic slowdown on the horizon, and elevated Russian crude production is keeping oil prices under check.
Russia has exceeded its OPEC+ production targets since March, leading to excess supply that is undermining the impact of OPEC+ production cuts and keeping prices low.
Source: OPEC and IEA
On Wednesday, the EIA reported a decline of 846,000 barrels in US crude inventories for the week ending 23/Aug, falling short of analyst expectations of a 2.7 million barrel drawdown. The market response to this smaller-than-expected inventory decrease was muted.
Demand for crude and gasoline will soften as US summer driving season ends first week of September.
Expectations of weaker US gasoline demand and lower refining margins have led several refiners to scale down their operations reducing demand for crude.
The largest US refiner, Marathon Petroleum ( NYSE:MPC ), announced that it will reduce its refining capacity to 90% this quarter, the lowest for a Q3 since 2020. PBF Energy ( NYSE:PBF ) will lower its capacity utilization to a three-year low, and Phillips 66 ( NYSE:PSX ) will cut its capacity to a two-year low.
Goldman Sachs and Morgan Stanley reduced their 2025 Brent crude forecast to USD 77/barrel and USD 75/barrel respectively. Reasons cited for reducing forecasts include weaker Chinese demand, higher inventories, oversupply from OPEC countries, and rising US shale production for the downward revision.
HYPOTHETICAL TRADE SETUP
Over the past two weeks, crude oil prices have been volatile for reasons mentioned above. Looking ahead, rate cuts in September, the ongoing crisis in Libya, and reduced US gasoline demand will fuel further uncertainty to oil prices in the near term.
This is evident from rising WTI crude oil implied volatility. Earlier on 05/Aug it slid from its YTD high of 44.7 but has started to pick up again.
Source: CME CVOL
Establishing a directional position amid such uncertain backdrop is rife with risks. Long straddles using Micro WTI Crude Oil Options offer an effective way to capitalize on rising volatility.
Straddles are designed to benefit from (a) significant price movements in the underlying asset regardless of the price move and (b) volatility spikes. Sharp oil price moves, and volatility spike are to be expected given the current context.
Straddles provides “unlimited” profit potential combined with limited downside risk. A straddle comprises of two trade legs, namely, a long ATM call option combined with a long ATM put option.
This paper posits a long straddle on CME Micro WTI options expiring on 17th September. Micro WTI options provide exposure to 100 barrels of WTI crude offering a smaller contract size and lower premium requirements.
Based on 30/August market prices, this hypothetical trade set-up uses CME Micro WTI Crude Oil options expiring on 17th September and involves (a) Buying a 76 ATM Call, and (b) Buying a 76 ATM Put.
The premiums for each leg and the corresponding option Greeks as shown QuikStrike Strategy Simulator are shown below for ease of reference.
The straddle requires USD 1.91 per barrel in premium for the long call and USD 1.8 per barrel for the long put. In aggregate the straddle would cost USD 3.71 a barrel. Each CME Micro WTI Crude Oil option comprises 100 barrels which translates to a premium of USD 371 per lot.
When Micro WTI Crude Oil futures trade past break-even points as shown in the chart, this straddle will deliver positive returns.
• Lower break-even point: 76 - 3.71 = 72.29
• Upper break-even point: 76 + 3.71 = 79.71
However, at expiry, if Micro WTI Crude Oil Futures prices settle between USD 72.29 and USD 79.71 a barrel, this straddle will incur a maximum loss of USD 3.71/barrel or USD 371/lot.
The straddle pay-off are summarized in the table below to augment the above chart, illustrating the potential P/L of this trade at a few settlement prices.
MARKET DATA
CME Real-time Market Data helps 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 tradingview.com/cme .
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Long 
Short
The Future of Crude Oil“We are not addicted to oil, but our cars are”, said a former CIA Chief, James Woolsey. That addiction is on the decline as we pen this paper. Love it, or hate it, but you cannot ignore it. Crude oil powers the planet. When global economy stutters, oil prices plunge.
Midway through 2023, crude oil demand appears wobbly on recession overhang and shaky economic recovery in China. Meanwhile, crude supply remains tight with OPEC+ scaling back production which has been compounded by limited investment in new exploration.
Over the long term, energy transition is set to fundamentally change the oil market. Consumers are shifting to EVs and renewable energy. In a befitting response, producers are reducing supply.
Energy transition will be anything but a straight line. It will create many risks and present many more opportunities.
This paper is set in two parts. First, we highlight key takeaways from a recent IEA report on crude oil outlook until 2028. Second, we explore hedging & trading instruments on the CME Group for participating in oil markets.
PART 1: KEY TAKEAWAYS FROM IEA CRUDE OIL OUTLOOK REPORT
The International Energy Agency (IEA) released Oil 2023 last week. This report describes in detail the changing dynamics in the oil market until 2028. It discusses key trends such as slowing demand growth, shifting producer growth, and the impact of energy transition on oil.
Recent crises have accelerated the energy transition. With COVID-19 plus rattled geopolitics, nations are increasingly more focused than ever on energy security and independence.
Ten key takeaways from Oil 2023:
1. Global oil demand to rise by 6% or 5.9M bpd between 2022 to 2028, reaching 105.7M bpd. Despite this, emissions will fall 11% with efficiency improvements.
2. Annual demand growth is expected to slow sharply in the coming years from +2.4M bpd in 2022 to just +400K bpd in 2028.
3. India and China will drive demand over the next decade while consumption among OECD countries will shrink.
4. Oil demand for gasoline will peak this year and start to reverse going forward with accelerated EV transition. Demand for transport fuels is expected to peak in 2026.
5. Jet fuel demand is still lagging 2019 levels by 13% and is expected to rise rapidly but only surpass pre-COVID levels in 2027 with expected efficiency improvements.
6. The petrochemical sector will replace the demand for transport fuels. Demand from LPG, Ethane, and Naphtha will increase by 40% from now until 2028.
7. Production growth from shale is expected to slow due to rising costs and lower prices. US shale will mature to a higher-return-lower-growth trajectory.
8. Global upstream oil and gas investment is projected to increase by 11% year-on-year in 2023, reaching USD 528 billion. This represents a rise from USD 474 billion in 2022.
9. Non-OPEC+ countries, including the United States, Brazil, and Guyana, will lead the medium-term capacity expansion plans. They are expected to contribute to a supply boost of 5.1M bpd.
10. By 2028, an additional 5.9M bpd of net production capacity will come online. The rate of new capacity building will decrease over time, aligning with projected demand growth.
Following four charts help visualise the large shifts underway in the crude oil market:
1. Price Sensitivity to Imbalance: Crude oil prices are highly sensitive to imbalances between production and consumption. Over the past 25 years, consumption has been marginally higher than production. Where deficit rises, spot prices rally.
2. Consumption between developed markets (DM) and emerging markets (EM): Consumption in EM will further outpace OECD countries. Consumption across EM overtook OECD in 2013 and this trend will be further entrenched. IEA forecasts that consumption in OECD countries will hit its apex this year.
Thereafter, it will start shrinking going forward. In sharp contrast, EM consumption will rise by 7.8M bpd between 2022-2028.
3. India to surpass China by 2027: Although both countries will continue to see demand increase, India will surpass China as the main source of growth by 2027.
4. Non-OPEC+ will be the primary source of growth in oil production: Production growth from OPEC+ will remain intact, while non-OPEC+ countries will be driving production growth.
PART 2: CRUDE OIL DERIVATIVES
CME offers a variety of instruments for producers, consumers, and investors to participate in the crude oil market. This includes WTI Futures & Options and Brent Futures & Options. Beyond these, CME also operates markets in a range of refined oil products, fuel oil, and natural gas.
In a previous paper , we highlighted the 40-year history of CME Group’s WTI crude oil derivatives. With an extensive suite of derivatives on offer, CME Group enables multiple alternatives for different market participants.
Futures
WTI Crude is a widely used global benchmark for oil prices. It is the underlying for one of the most liquid futures contracts in the world – the CME Crude Oil Futures ("CL Futures"). CL Futures is a physically delivered contract with tight correlation to the physical oil market.
Over one million contracts change hands daily, representing USD 7+ billion in notional value. Each lot of the CL Futures contract represents one thousand barrels of crude oil. CL Futures provide deep liquidity and high-quality market structure for hedgers and investors to participate in and protect against oil price volatility.
Monthly contracts are available over the next ten calendar years. Front month contracts are easily tradable on CME Globex electronic order book. Longer dated contracts require engagement with inter dealer brokers for price discovery and voice-based trade execution.
Alternatively, CME’s Micro Crude Oil contract (MCL) offers exposure to just 100 barrels with a maintenance margin of just USD 580 (as of 23rd June), enabling affordable participation into these markets. The micro contracts allow hedgers to manage risk exposure with greater precision.
Options
Monthly options are available on the underlying CL futures. They are deeply liquid with seamless order book-based trading on CME Globex.
Open interest on the front month contract is >300,000 lots, representing premium of more than USD 1 Billion across calls and puts. More than 20,000 contracts are traded daily.
Weekly options are used to fine-tune exposure around key events such as OPEC+ meetings and interest rate announcements. Daily options are available for CL Futures. Monthly and weekly options are also available on Micro Crude Futures.
CME provides calendar spread options and mid-curve options which can be used as tactical trading and hedging tools given the seasonality of oil markets.
Trading Strategies
There are innumerable ways of trading the crude oil market. Most popular among them include (a) taking directional position using futures and options, (b) establishing shrewd hedges or convex trading strategies using options, and (c) trading delta-neutral calendar spreads gaining from relative shifts across the futures term structure.
Previously we have covered different trading ideas in crude oil, including taking a directional position - (a) Is US Oil running low on energy? (b) Is WTI crude set to rebound? (c) Three headwinds to send crude oil into free fall , (d) Harnessing gains from mean reversion in crude oil markets , and (e) Rebounding air travel & rising China to fire up WTI crude.
In our next paper, we describe the mechanics involved and illustrate the workings of popular trading strategies.
KEY TAKEAWAYS
In conclusion,
1. The Crude oil market is at the cusp of substantial change as energy transition powers on.
2. Change will be a constant. Impact on price will be anything but a straight line, creating both risks for the uninitiated and opportunities for the astute.
3. CME Group’s deeply liquid market with broad range of instruments enables market participants to harvest gains in risk-mitigated ways and to lock in credible reward to risk ratios.
MARKET DATA
CME Real-time Market Data helps 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
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description. Short 
BCO LONG OIL WTI LONGOil Price forecast for March 2022.
In the beginning price at 107.02 Dollars. High price 139.13, low 90.50. The average for the month 107.13. The Oil Price forecast at the end of the month 91.88, change for March -14.1%.
Brent oil price forecast for April 2022.
In the beginning price at 91.88 Dollars. High price 91.88, low 84.91. The average for the month 88.72. The Oil Price forecast at the end of the month 86.20, change for April -6.2%.
Oil Price forecast for May 2022.
In the beginning price at 86.20 Dollars. High price 92.91, low 86.20. The average for the month 89.21. The Oil Price forecast at the end of the month 91.54, change for May 6.2%.
Brent oil price forecast for June 2022.
In the beginning price at 91.54 Dollars. High price 98.68, low 91.54. The average for the month 94.75. The Oil Price forecast at the end of the month 97.22, change for June 6.2%.
Oil Price forecast for July 2022.
In the beginning price at 97.22 Dollars. High price 104.80, low 97.22. The average for the month 100.62. The Oil Price forecast at the end of the month 103.25, change for July 6.2%.
Why Oil Crashed Back Below $100
After a torrid three-week rally, energy markets have entered correction mode, with prices moving sharply lower. Over the past week, Brent has slipped 30% from the 7 March intra-day high while European gas prices have declined 65%.
Brent for May delivery settled at USD 106.90 per barrel (bbl) on 14 March, a w/w fall of USD 16.31/bbl, and moved below USD 100/bbl in early trading on 15 March. WTI for April delivery fell USD 16.31/bbl w/w to USD 106.90/bbl at settlement on 14 March, while the value of the OPEC basket fell by USD 15.84/bbl to USD 110.67/bl and by EUR 15.40/bbl to EUR 101.16/bbl.
You can blame speculative overshoot for the unfolding scenario though the overall outlook remains bullish.
According to Standard Chartered commodity analysts, the correction tells us more about market positioning and the effect of extreme volatility than it does about changes in fundamentals over the past week.
The increase in volatility across financial and commodity markets has led to a sharp rise in the level of risk held by traders, and an associated incentive to close out some positions to lower the risk. Oil traders have mostly been positioned with a highly bullish bias in terms of both outright positions and spreads in recent weeks, meaning optimization in a higher-risk environment has mostly involved closing out prompt longs. With speculative shorts being very thin on the ground currently, there have been few natural buyers, and the downside has quickly opened up. While the price ranges involved have been rather extreme, recent price dynamics bear all the hallmarks of a textbook speculative overshoot followed by the correction necessary to reset extreme positioning.
The irony of the situation is that the dominance among oil traders of the belief that prices could only move higher has led to a position from which market dynamics dictated that in the short term, prices could only go lower.
Replacing Russian Oil
Despite the positioning-led price fall, StanChart says that the key fundamentals are largely unchanged and are also subject to an unusually high level of uncertainty.
According to commodity analysts at Standard Chartered, Russian oil flows to Europe can be replaced in the short term, with the short-term price implications of that displacement potentially capable of being minimized by the extent to which OPEC members increase output beyond their current OPEC+ targets, and also by the possibility of a successful conclusion to talks in Vienna that results in higher volumes of Iranian exports.
The analysts have projected that consumer reluctance to buy from Russia coupled with shortages of capital, equipment, and technology will continue to depress Russian output over at least the next three years. Russian output is expected to fall by 1.612 million barrels per day (mb/d) y/y in 2022, and by a further 0.217mb/d in 2023, with the y/y decline peaking at 2.306mb/d in Q2-2022. To avoid significant upside price pressure, StanChart reckons that the market would require around 2mb/d extra supply for the remainder of 2022, and an additional 2mb/d in Q2 to ease the dislocations caused by the displacement of Russian oil. The temporary 2mb/d Q2 boost could come from strategic reserves, but the 2mb/d additional flow for the remainder of 2022 would likely need to come from OPEC sources (including potentially Iran).
Market tightness is, however, being helped by the fact that withdrawal from Russian markets has been less dramatic than anticipated.
So far, there are indications that some of the larger EU countries are less keen than countries in the east of the EU to pursue the fastest possible reduction in Russian oil flows. Outside of the EU, the UK’s ban on the import of Russian oil has proved less dramatic than the headlines that accompanied the initial announcement, as it does not take effect until the end of 2022. In the private sector, while several companies have given assurances they will buy no more Russian oil on the spot market, there have been very few indications given about if, when, and how they will cut the volume of Russian oil purchased through their term contracts. Meanwhile, statements from some governments and some companies do appear to have become less hawkish over the past week, with an apparent lengthening of the timespan envisaged for the process of reducing dependence.
StanChart says that Russian oil trade into Europe appears to be moving further into the shadows of term contracts and a greater reliance on third-party trading intermediaries. That does not make trading with Russia any less distasteful for European public opinion, but it does make the trade less visible and thus likely keeps oil flows from Russia higher than they would have been with more direct government targeting of those flows.
Long 
