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A Long-Term Trade As Oil Markets Recover

If, like me, you like to trade energy-related products, whether futures, stocks, options, or whatever, the last two months or so have been boring or, more positively I guess, peaceful. Part of the joy of markets in general and of energy, in particular, is that there’s always something moving, so I’ve done well on things like fuel cells on the way up and then down and a few intraday momentum trades in natural gas, but when oil isn’t moving, most energy stocks get stuck too.

As you can see from the chart below, WTI has been stuck in a narrowing channel with a very gradual upward trend for two solid months…

After all the drama of the collapse and the front end contract going negative back in April and then the rapid bounce back, a period of calm could be anticipated at some point, and it makes sense now given the delicate balance between supply and demand factors.

Supply has been contracting as the OPEC+ group held steady with their output cuts (until the July meeting at least) and the collapse in oil forced massive rig shutdowns outside that group, particularly in the U.S. That is a bullish influence on oil, but it has been offset by one of the sharpest, deepest recessions in human history, the impact of a resurgent Covid-19 in the U.S. and recently by the relaxation of the cuts by OPEC et al.

Recently, though, the focus of the market has been on the demand side of the equation. That is why crude has been essentially following…





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