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Martin Tillier

Martin Tillier

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Why This Trade Still Makes The Most Sense

The oil market’s reaction to news this week told us a lot, and confirmed what many of us have maintained all along. Oil’s collapse may have had elements of fear about growth to it but, at heart, it was all about supply. Oil was bumping along in a $53-$54 range despite further indications that a Greek exit from the EU was on the cards, and all of the negative implications that has for European, and therefore global, demand. Late in the afternoon, however, when the American Petroleum Institute reported a 14.3 million barrel increase in their estimate of U.S. crude inventories, traders were transported back to the end of last year as WTI crude did this.

After the market closed, futures briefly traded below $50 and a test of the mid-40s support looked extremely likely. Then, on Thursday, came the official number. While higher than most expected, that didn’t support the massive increase in stockpiles indicated by the API, and crude gained back some of the lost ground. Essentially ignoring a threat to global growth all day then turning tail at the possibility of a supply glut is a sure indication that it is domestic supply that has traders worried. The implication of higher stockpiles is that producers are still increasing production despite the lower price and that caused concern.

For those wondering whether now is the time to dip a toe back into the turbulent waters of energy stocks this is a clear sign that it is as good a time as any. Weekly…

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