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Further losses for US Crude this week?

Trading ideas for this week

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
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In the last two weeks, the price of US Crude has fallen from a high of $42.38 to $37 in early trading today. What looked like a great 5-week recovery from the yearly lows of $27 to $42, now seems as if it has been premature for the following reasons:

  • The rally was based on output cuts happening after the mid-April meeting
  • Saudi reiterated on Friday it won’t cut production unless Iran will participate which they clearly denied time and time again
  • Russia’s oil output highest in 30 years
  • Hedge funds have cut their net long positions for the first time in six weeks
  • Falling rig counts in the US haven’t led to the expected drop in oil supply
    • Any drop could easily be offset by Saudi, Russia or Iran or by draining current stock

Oil looks likely to head below US$35, but there does not look to be enough negativity in the market to push it below US$30. This pullback is very important because if we see oil prices bounce upwards again after returning to the US$30-35 region then that largely locks in the mid-February double bottom around US$26 as the cyclical low for the oil price. Meaning the only way from there is up. But price moves are set to be fairly volatile as rumours and press releases leak out as we head into the producers meeting in mid-April. But when oil prices turn up again the high-yield debt complex and emerging markets are all likely to rally strongly.’ (Angus Nicholson, Market Analyst at IG)

To make use of the information above, you can position yourself now through IG.

Trade ideas

If you agree with the statements above, you will likely want to short the market until it reaches the $30-35 levels and then build a long position to capture a bounce.

However, if you don’t agree and think the looming mid-April meeting will actually materialise to output cuts, you may want to take advantage of the recent drop in prices and build a long position.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.