Crude Oil (CL) Futures high level analysis
The CL Crude Oil Contract is the most heavily traded energy futures contract available. It is based on the West Texas Intermediate Light Sweet Crude Oil price as quoted in Cushing, Oklahoma. This contract is significantly more traded than the, maybe more commonly known, Brent oil price, also available as futures under the code BZ. CL is also generally significantly more traded than natural Gas (NG). For traders interested in starting to trade energies, the CME Group have recently introduced a micro oil contract (MCL) which is quickly gaining in popularity, and thus volume, in parallel with the much less loved mini contract (QM). The size of the contracts are: CL=1000 barrels of oil, thus paying $10 per cent move in price per barrel. The MCL contract is based on 100 barrels per contract, paying $1 per cent move in oil price. The less traded QM contract is 500 barrels per contract therefore paying $5 per cent move in the oil price per barrel.
Political situation and impact on oil price
The political instability in the middle east and the western threats against Iran, threatening stability in the area and therefore oil supply stability. A resolution of the tensions are likely to send oil price in a dive whereas any ratcheting up of tensions will do the opposite. Russia and Saudi Arabia have the capacity to fill some of the supply void that would happen in the case of wider sanctions or conflict whereas the US will likely struggle to increase production quickly due to shale oil production companies having taken a severe hit during the last couple of years with oil prices being depressed below production cost for the relatively expensive production of shale oil which has led to a raft of companies having had to go into administration or at least mothballing their production which is not quick to turn back on. Depending on how the political tensions play out will have a profound effect on the direction and range of price movement.
Crude Oil monthly is in a very extended but not yet fully compounded move higher with price reaching levels not seen since October 2018 in July. Technically we are expecting a pullback of price into the $60 level before re-engaging the trend higher. This pull-back is expected to last for two to four months if August closes red. If there is a swift and robust resolution to the middle east tensions however price may drop significantly lower, perhaps as low as $35 per barrel although the $60 per barrel level is likely to give significant resistance as it is in nobody’s interest to see oil prices dropping beneath this level again as it eliminates the opportunity for actors in the industry to make good profit.
The weekly CL chart has been reaching higher highs since May of 2020, currently in a retracement after its third leg higher. Bearing in mind the maturity of the trend, a further pullback to at least the $65 or possibly the $60 level is expected. Following the pull-back, price is likely to move back to around the $76-$77 per barrel level before once again running short. The initial pull-back is expected to last for a further one to three weeks before price is again expected to rise.
The daily CL chart appears to have come into a ranging pattern with a slight decreasing movement over time. The current leg short is established an well underway, expected to continue running for one to seven days but is unlikely to break the $65 level in this leg as there is strong support for price at this level unless the political pressures force price lower. There are OPEC-JMMC meetings next week so anything is possible, up or down!
Crude Oil price has recovered very well from its rock-bottom lows in April 2020 and is back to what might be considered as more normal levels. As always with oil, price is highly sensitive to political pressures and stability in the Middle East even though Russia and to a degree Saudi Arabia have the production capability to bridge some supply gaps should they occur but any major issues will directly reflect on price. Technically the price levels are fairly clear and there are great opportunities for profiting but as always with the price of oil, there are underlying forces at work that can scupper the best laid trading plans!
This type of analysis should benefit you whether you are trading for long, medium or short term gains and only aims to give you levels of significance and areas where to enter and exit trades. Lower timframe analysis is then required to ensure that optimum entry levels are achieved.