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Crude oil trading strategy: What oil market participants are watching

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crude oil trading strategy

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.

Commodities

Copper price chart fluctuates at previous closing levels

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Copper price chart

Copper prices chart are fluctuating slightly near the level of the previous close as investors estimate a lot of factors, trading data shows.

September futures on copper on the Comex exchange are getting cheaper by a symbolic 0.01%, to $ 3.5515 a pound.

On the London Metal Exchange (LME) in previous trading, the cost of a ton of copper with delivery in three months increased by 1.85% to $7,870.5; aluminum — by 0.54%, to $2,416. Zinc — by 1.1%, to $3,488.5.

Quotes in the morning do not show any pronounced dynamics for a lot of reasons. For example, the price of copper is affected by the tense situation between the U.S. and China, the largest consumer of this type of industrial metal.

Also, the price dynamics are influenced by macro statistics — exports from China in July jumped by 18% year-on-year, while the forecast growth was only 15%, which, in turn, cut some concerns about the demand for metals in its largest market.

At the same time, investors continue to fear a recessionary economy. Expectations of a further increase in the discount rate by the U.S. Federal Reserve System after the release of data from the labor market in the country have increased fears.

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Commodities

Natural gas price in Europe per 1,000 m3 hits $2,100 on the exchange

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Natural gas price europe per m3

Natural gas price Europe per 1,000m3: September gas futures contracts (benchmark TTF) were trading at $2,100 per 1,000m3 on Monday, gaining some 1.6% against Friday’s settlement price in the first hour of trading, London’s ICE exchange data showed.

So far, the current price minimum is $2,056.7 (-0.5% compared to Friday’s settlement price of $2,066.5). The maximum is $2,100 per 1,000m3 (+1.6%).

Last year the European market faced a gas collapse. Experts attributed the collapse to limited supply from major suppliers, low occupancy rates of underground gas storage facilities in Europe, and high demand for liquefied natural gas in Asia.

Right now, Europe continues to be under pressure due to continued supply strains from Russia. Russian gas exports have fallen since the outbreak of the war in Ukraine: shipments via Nord Stream and the Ukrainian gas transportation system have dropped significantly, and the Yamal-Europe pipeline has stopped altogether.

The average monthly settlement price of the nearest gas futures on the ICE increased sharply, by almost 50%, from $1,180 per 1,000m3 in June to about $1,805 in July, while in the middle of summer last year it did not exceed $500. In the last days of July gas quotations reached $2,400 per 1,000m3 for the first time in four months. Such steadily high prices have not been seen in the entire history of European gas hubs since 1996.

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Commodities

Price of gold falls on expectations of further US Federal Reserve rate hike

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price of gold falls

Price of gold falls: the price of the precious metal on Monday morning slightly decreased on the prospects of further interest rate hikes by the U.S. Federal Reserve, according to trading data.

The December gold futures price on the New York Comex Exchange is down $2.75, or 0.15%, to $1,788.7 a troy ounce. September silver futures went up 0.24% to $19.89 an ounce.

The precious metals market showed a negative trend on Monday morning, fueled by expectations of further interest rate hikes by the U.S. Federal Reserve after the release of the country’s labor market data.

Thus, the unemployment rate in July fell to 3.5% from the June level of 3.6%, while the number of the employed in non-farm industries increased by 528,000. Analysts had expected the figure to remain at June’s level. The increase in nonfarm payrolls was forecast at 250,000.

“Support from geopolitical tensions “was countered by the resilience of the U.S. dollar after the release of a credible U.S. jobs report and hawkish comments from Fed officials,” Ravindra Rao, vice president of commodities at Kotak Securities, told Bloomberg news agency.

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