Crude's Next Move
iiTrader Founder & Chief Market Strategist
According to sources of mine, two major oil companies and one independent filed for crude exporting licenses.
That's right, the U.S. will be exporting oil. We are already are sending refined products to Europe and elsewhere at a record rate. And because of the mark up, the oil companies can make a great profit.
This brings me to my "Mother of All Trades": the WTI /Brent spread trade.
The "spread" is simply the price differential between the two different types of oil. And because the spread is at the highs for the year, this provides a great set-up. For this trade I will be calculating the price by simply subtracting the price of WTI (CL) from the price BRENT(BZ), and Friday morning that comes out to $22.71. (Read More: Global Tensions Could Push Oil to $100: Kilburg.)
We can think of the spread as a contract — so what are the specific levels?
I am SELLING the (NOV BZ-CL) spread at $24.90 with a $27.90 stop and BUYING is back at $17.90. The concept is easy as we export the WTI that competes for share in the market The price of Brent will drop, thus narrowing the spread. Each dollar move in the spread equals $1, 000. For this trade I am risking $3, 000 to make $5, 000.
I believe that WTI outright is using a combination of a better economic outlook, a weaker dollar, and geopolitical tension as it attempts to close with its first weekly gain in a month. So far Friday morning we are looking at a higher low at $91.65 and currently trading at $92. This low is also higher than Thursday's late-day pullback to $91.56. Look for the same resistance level above $93 — only know that a close back above $94.21 will put his market into a bull trend.
With all that said, how am I trading the WTI outright?
Depending on the market conditions, I will look to sell the first test just above $93 once again. With a little improvising, this market has been a day trader's paradise using the levels between $93 and $90.50. On a failure of support, a close back below $90.50-68 will lead to steeper declines next week.
Let me just close with one trader's tip. With all the geopolitical risk, a.k.a. the "unknown factor, " most of us do not want to go home over the weekend staying crude, so we tend to cover our positions.
Resistance — 93.10, 93.66, 94.21**, 95.70***
Support — 90.50-90.68**, 89.75**, 87.50-87.20***, 84.90, 82.00