Crude oil trading strategies require a multi-level approach. Crude oil prices ended July in a second consecutive month of declines due to concerns about rising interest rates and an economic recession globally. Nevertheless, demand for the fuel remains strong enough to support prices above $100 a barrel for Brent. The current trading range of $99-108 a barrel may remain in force this week.

Friday was the last day of September Brent futures trading on the ICE and CME exchanges. Today, the bulk of crude oil trading shifted to the October contract, which traded much lower. As a result, a distinctly bearish candlestick can be seen on Friday’s chart, although it was rising. The discount on American WTI crude oil to Brent has fallen from $10.7 to $5.3 per barrel.

How does oil trading work during geopolitical tension?

The level of geopolitical tension in the world remains elevated. This is bad for smooth international trade, including energy, and can support high commodity prices.

Russian gas deliveries to the EU via Nord Stream remain at 20% of their target. Over the weekend, gas supplies to Latvia were cut off, “due to the buyer’s breach of the conditions of withdrawal.” None of this is directly related to the oil market, but it is an alarming signal to the importing countries that there may be problems with supplies from Russia. It encourages oil trading companies to raise prices.

Over the weekend, U.S. House Speaker Nancy Pelosi, the third person in the U.S. government, flew out on a tour of the Asian region. The intrigue was whether Pelosi would visit Taiwan. Earlier, China had officially demanded that the U.S. cancel the visit and explicitly hinted at the possibility of military escalation in the region if she refused. There was no clear public response, but judging by media reports, no visit to Taiwan is planned. Many people are now building their oil trading strategies on this fact. 

The surprise was the increased tension in Kosovo. On Sunday night, explosions and gunshots were heard in northern Kosovo. Serbia’s army, which does not officially recognize Kosovo as a sovereign state, is on high alert. It is still difficult to assess the impact of these events. Serbia is crossed by the Balkan Stream gas pipeline, which connects Hungary with the Turkish Stream.

OPEC+ meeting

The OPEC+ deal comes to an end in August. The total production quota will increase by 640 thousand bpd, completely canceling all the cuts that were imposed back in 2020. This week is the next meeting of the alliance, where representatives of major oil exporting countries will discuss production policy in September 2022. According to rumors in the media, many members want to continue to increase production.

OPEC’s technical committee will meet Tuesday, August 2, where industry experts will present their estimates of supply and demand in the market. The ministerial meeting will be held on Wednesday, August 3. The focus will be on Saudi Arabia’s position. After a visit to the country by U.S. President Joe Biden, chances are that the kingdom will announce plans to use its spare production capacity. If that happens, oil prices could react negatively to the news and go below $100.

U.S. drilling activity – how it affects oil trading basics

At the end of the week, Baker Hughes has traditionally published data on the number of active rigs in the U.S. and Canada. The number of oil rigs in the U.S. rose 6pc to 605pc, while in Canada it rose 13pc to 137pc. The renewed growth in the number of rigs has a positive effect on US production forecasts, although estimates for the second half of 2022 are still very restrained. Earlier in its July review, the EIA specialists revised downwards the forecast for US production. Production in December 2022 is forecasted at 12.5m bpd against the earlier expected 12.6m bpd.

As of this morning, Brent futures are down 0.9% and trading around $103 a barrel.