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
AUD/USD consolidates below 0.6600 amid the US election uncertainty
AUD/USD remains on the defensive below the 0.6600 mark on Tuesday as traders seem reluctant ahead of this week's key event risks – the US presidential election and the FOMC policy meeting. In the meantime, the unwinding of the Trump trade continues to weigh on the USD and offers some support to the currency pair.
EUR/USD posts modest gains above 1.0850, all eyes on the US presidential election results
The EUR/USD pair trades with mild gains near 1.0880 during the early Asian session on Tuesday. The US Dollar edges lower as traders brace for the outcome of the US presidential election and a likely interest rate cut from the Federal Reserve, which supports some support for the major pair.
Gold trades around $2,730
Gold price is on the defensive below $2,750 in European trading on Monday, erasing the early gains. The downside, however, appears elusive amid the US presidential election risks and the ongoing Middle East geopolitical tensions.
RBA widely expected to keep interest rate unchanged amid persisting price pressures
Australia’s benchmark interest rate is set to stay unchanged at 4.35% in November. The focus remains on Reserve Bank of Australia Governor Michele Bullock’s comments and updated economic forecasts. The Australian Dollar could wilt if RBA Governor Bullock ramps up bets for a December rate cut.
US presidential election outcome: What could it mean for the US Dollar? Premium
The US Dollar has regained lost momentum against its six major rivals at the beginning of the final quarter of 2024, as tensions mount ahead of the highly anticipated United States Presidential election due on November 5.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.