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Oil broke its fourth consecutive day of losses after learning that an American warship had shot down an Iranian drone near the Strait of Ormuz yesterday. President Trump said Thursday that the United States had "immediately destroyed" the drone, which was only a few thousand meters away. This has created a major panic among traders due to a breakdown in oil supply in the Middle East.
The Strait of Ormuz is a critical area as it can smother the flow of oil and Iran has the ability to shut it down as it controls this area. However, the Iranian Foreign Minister, Mohammed Javad Zarif, said that the country had no such intention, as he considers it a lifeline. Iran plays a crucial role in securing the Strait of Hormuz and nearly one-third of the world's marine crude went through this area last year. Nearly six tankers have been attacked over the past two months and the United States has blamed Iran for this.
Oil is up 0.83% today and is attempting to recover its biggest weekly decline (nearly 7%, which has not been the case since May) and is expected to end the week ahead. drop. However, WTI is up 17.21% since the beginning of the year and Brent has climbed 14.26% since the beginning of the year. The graph below shows the percentage of weekly loss for WTI.
The WTI price has suffered its worst losses since May 2019.
Source: Bloomberg, ThinkMarkets
Given the speculative market, it is clear that hedge funds are no longer interested in opening new long positions on oil. The chart below shows the short and long net positions of WTI by hedge funds. It is important to keep in mind that this data is dated July 7, so the recent situation does not clearly reflect it, but we must not forget that speculative positions on oil have fallen to their lowest level. level since 2013.
Hedge funds reduced their long net position on WTI.
Source: Bloomberg, ThinkMarkets
To conclude, the bearish catch is still too strong and oil producers are too eager to control supply, and the demand equation shows no signs of recovery because of the ongoing trade war between the United States and China. I think the current medium-reversion trade may not last long unless the geopolitical tensions in the Middle East change course or, miraculously, Donald Trump makes peace with China.
The short-term support for WTI is around US $ 50 (for now) and an interruption of this support could allow the price to move towards a major support area of US $ 45. The short-term resistance is $ 62, followed by the $ 65 level.
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Oil broke its fourth consecutive day of losses after learning that an American warship had shot down an Iranian drone near the Strait of Ormuz yesterday. President Trump said Thursday that the United States had "immediately destroyed" the drone, which was only a few thousand meters away. This has created a major panic among traders due to a breakdown in oil supply in the Middle East.
The Strait of Ormuz is a critical area as it can smother the flow of oil and Iran has the ability to shut it down as it controls this area. However, the Iranian Foreign Minister, Mohammed Javad Zarif, said that the country had no such intention, as he considers it a lifeline. Iran plays a crucial role in securing the Strait of Hormuz and nearly one-third of the world's marine crude went through this area last year. Nearly six tankers have been attacked over the past two months and the United States has blamed Iran for this.
Oil is up 0.83% today and is attempting to recover its biggest weekly decline (nearly 7%, which has not been the case since May) and is expected to end the week ahead. drop. However, WTI is up 17.21% since the beginning of the year and Brent has climbed 14.26% since the beginning of the year. The graph below shows the percentage of weekly loss for WTI.
The WTI price has suffered its worst losses since May 2019.
Source: Bloomberg, ThinkMarkets
Given the speculative market, it is clear that hedge funds are no longer interested in opening new long positions on oil. The chart below shows the short and long net positions of WTI by hedge funds. It is important to keep in mind that this data is dated July 7th. The recent situation does not reflect them clearly, but we must not ignore the fact that speculative positions on oil have fallen to their lowest level since 2013.
Hedge funds reduced their long net position on WTI.
Source: Bloomberg, ThinkMarkets
To conclude, the bearish catch is still too strong and oil producers are too eager to control supply, and the demand equation shows no signs of recovery because of the ongoing trade war between the United States and China. I think the current medium-reversion trade may not last long unless the geopolitical tensions in the Middle East change course or, miraculously, Donald Trump makes peace with China.
The short-term support for WTI is around US $ 50 (for now) and an interruption of this support could allow the price to move towards a major support area of US $ 45. The short-term resistance is $ 62, followed by the $ 65 level.
