Strategists from Toronto-Dominion Securities have published an analyst note highlighting that cautions Crude Oil prices, while set to go higher, could see limited upside.
Higher yes... But too early to bet on extended oil bull run due to Middle East
Oil prices jumped by over four dollars on Friday after the US decided to tighten its sanctions regime against Russian crude exports, while the fear that the current Israel-Hamas conflict will spread, eventually drawing Iran into the conflict, and impacting the transit of oil through the Strait of Hormuz, also helped support the rally.
Price action in the aftermath of the assault follows a large-scale stop-out of CTA trend followers' long positioning, with subsequent flows reverberating onto prices.
Our estimates of CTA positioning suggested that the Golden Week liquidity vacuum saw algorithmic trend followers liquidate approximately 60% of their net long position (equivalent to 30% of their maximum historical position size)... In turn, while traders have attempted to stick to the 'show me the lost barrels' mantra that has prevailed over recent years, which argues for a fading supply risk premium, CTA buying activity is working against the typical playbook.
Our current positioning analytics suggest that substantial buying activity could take place north of $90.50/bbl in Brent, supporting continued strength.
the risk premium driven by the current Israel-Hamas conflict, prompts us to say that WTI crude will trade above the $90/bbl mark in the final quarter of the year, with Brent coming close to the triple digit mark. But at this point, we don’t see a surge materially above $100/b, as we expect OPEC+ to continue supplying crude at planned levels and we judge that the presence of the US aircraft carrier strike group and military aircraft close to Israel is likely to keep crude flowing without meaningful interruptions.
... any spread of violence to the (Strait of Hormuz) region that would materially interrupt these flows has the potential to send prices surging to new highs. In such a scenario, $150+/b crude would very much in the cards. The strait is also crucial LNG pinch point, which suggests that conflict in the area would move natural gas prices to the upside around the world, and particularly in Europe.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays in positive territory above 1.0850 after US data
EUR/USD clings to modest daily gains above 1.0850 in the second half of the day on Friday. The improving risk mood makes it difficult for the US Dollar to hold its ground after PCE inflation data, helping the pair edge higher ahead of the weekend.
GBP/USD stabilizes above 1.2850 as risk mood improves
GBP/USD maintains recovery momentum and fluctuates above 1.2850 in the American session on Friday. The positive shift seen in risk mood doesn't allow the US Dollar to preserve its strength and supports the pair.
Gold rebounds above $2,380 as US yields stretch lower
Following a quiet European session, Gold gathers bullish momentum and trades decisively higher on the day above $2,380. The benchmark 10-year US Treasury bond yield loses more than 1% on the day after US PCE inflation data, fuelling XAU/USD's upside.
Avalanche price sets for a rally following retest of key support level
Avalanche (AVAX) price bounced off the $26.34 support level to trade at $27.95 as of Friday. Growing on-chain development activity indicates a potential bullish move in the coming days.
The election, Trump's Dollar policy, and the future of the Yen
After an assassination attempt on former President Donald Trump and drop out of President Biden, Kamala Harris has been endorsed as the Democratic candidate to compete against Trump in the upcoming November US presidential election.