Crude Oil Climbs on Escalating Geopolitics—Testing Key Resistance

Energy Update

/ by Blue Line Futures

Crude Oil Climbs on Escalating Geopolitics—Testing Key Resistance

WTI Crude Oil Futures (June Future)

 

Yesterday’s Settlement: 57.13, down -1.16 [-1.99%]

 

On Saturday, we got the OPEC decision we have been worried about: an output hike of +411k bpd for June. This potential bearish catalyst had kept us sidelined from the long side since Kazakhstan made its comments on the 23rd.

 

Yesterday, we flipped our bias to Neutral / Bullish. With the negative catalyst we’ve feared being realized, our fundamental analysis turned forward, and the environment was chalked with bullish catalysts.

 

Israel is gearing up for a conflict escalation. Last week, President Trump put in place secondary Iranian oil sanctions. The Russia-Ukraine ceasefire has fallen apart, with Trump threatening sanctions, and global inventories remain near historical seasonal lows. The Trump administration is also actively trying to take Venezuelan barrels off the export markets and is doing so with some success.

 

Today, Crude Oil is up +1.26 [+2.21%] to 58.39

 

Crude Oil is being driven by the fundamental catalysts explained above. The macro environment is trading risk-off, with the dollar moving lower alongside equity indices, while treasuries are flat.

 

Gold moved sharply higher overnight, with the PBOC (Chinese Central Bank) weakening its currency more than anticipated. The Fed meeting starts today, with tomorrow’s announcement and Powell presser. Markets will be looking for clues on how committed the Fed is to its wait-and-see attitude towards lowering rates.

 

Summary & Bias

 

The bearish catalyst that has kept us sidelined has now been realized. As we turn our analysis forward, the environment is chalked with bullish potential catalysts. Because of this, we shifted our bias to Neutral / Bullish the morning of May 5th on the Sunday night ~4% gap lower in futures.

 

On paper, the forward-looking balance sheet looks oversupplied with accelerated OPEC hikes against a weaker demand outlook with the global economic slowdown we’re currently experiencing.

 

This will be the bear case, and it’s a valid case, but it uses somewhat lazy math. If you back out Iranian barrels, lower US production growth, and back out some Venezuelan barrels, the picture looks much different.

 

When you add in some risk-premia for potential Russian sanctions and an escalation of the Middle Eastern conflict, you get to our bull case of the mid-60s level.

 

Technical Analysis:

 

June futures are trading into our key level of 58.29-59.00**. We’d like to see a settlement above 58.29**, which would maintain short-term momentum in favor of the bulls.

 

Selling pressure will be apparent on pops like we are seeing this morning, as the sell side will likely push the easy bear thesis onto clients. We’re going against the grain on our bullish bias, so some patience and prudent position sizing are necessary.

 

For intraday trading, our pivot and point of balance is set at..

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Futures trading involves a substantial risk of loss and may not be suitable for all investors. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.

Blue Line Futures is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that the NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians, or markets. Therefore, carefully consider whether such trading is suitable for you considering your financial condition.

With Cyber-attacks on the rise, attacking firms in the healthcare, financial, energy, and other state and global sectors, Blue Line Futures wants you to be safe! Blue Line Futures will never contact you via a third-party application. Blue Line Futures employees use only firm-authorized email addresses and phone numbers. If you are contacted by any person and want to confirm your identity please reach out to us at info@bluelinefutures.com or call us at 312- 278-0500

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