Trade of The Day – Oil

Facts:

• Brent crude oil futures (OIL) rebound on Friday at 15:00 to above $104 after an earlier drop to $100
• The gap between the futures market and the physical oil market has been widening in recent days
• Saudi light crude is already being sold to Asian buyers via Red Sea ports at around $125 per barrel, according to WSJ sources
• Saudi officials cited by the WSJ expect further price increases if the Strait of Hormuz remains closed
• The head of the International Energy Agency indicated that, at the current stage, restoring oil and gas production in the Persian Gulf to pre-war levels could take up to six months

Recommendation:

• Position: Long on OIL at market price
• Take Profit 1: 111
• Take Profit 2: 119
• Stop Loss (SL): 100

Opinion

As oil inventories are being depleted, real physical shortages may start to emerge next week. If supply tensions persist, prices could exceed $120 per barrel, with some estimates pointing even toward $140. By the second week of April, if supply disruptions continue and the Strait of Hormuz remains closed, Saudi officials cited by The Wall Street Journal expect prices to reach $150 per barrel, with further increases to $165 and even $180 in the following weeks. Meanwhile, U.S. Marines aboard the USS Tripoli group are heading toward the Middle East, with arrival expected in about a week. Additionally, Israeli Prime Minister Benjamin Netanyahu stated yesterday that a ground operation in Iran may be necessary.

All of this suggests that the conflict is unlikely to end in the coming days, and the probability of a near-term peace scenario remains low. As a result, oil prices may increasingly reflect both a growing geopolitical risk premium and actual supply disruptions. We recommend taking a long position in oil, with a stop loss at the psychologically important level of $100 per barrel and two take profit targets at $111 and $119. These levels are relevant from a price action perspective.

Source: xStation5