Short WTI inline with long term view
It is our view that the price of oil is in terminal decline and will, by 2030, approach zero or at least less than $10 a barrel. The reasoning here is clear, the world is moving away from fossil fuels. Many countries and car makers have already said they will be electric only sometime in the 2020's, renewable energy powers more and more electricity and new power stations being built are never oil fired. On top of this is the increased potential supply, everytime OPEC try to cut production, or some geopolitical event catches one of the emerging market economies dependent on oil, the US shale producers simply fire up production and make some hay whilst the sun shines before closing the pumps and going back into hibernation. $60-$65 seems to be the price point that generates a frenzy of shale gas production in the US and that pulls price lower almost immediatly. As a result of all of this we are only looking to trade Oil lower and look to the charts to time our entry.
Above is our weekly chart of WTI oil, it shows a long bear trend defined by the blue trendline, the waves count nicely to that trend line with impulsive waves lower and corrective waves higher. We did trade at purple (Y) but unfirtunately exited early at the orange trendline but we did meet our 4:1 risk reward criteria. Having broken the bottom of the rising channel (orange on the chart) which looks like a bearish flag pattern we think the next impulsive wave lower has begun, the chart shows it going to zero but that is a little aggressive!
Potential Oil trade
Above is the daily chart in oil, it counts the recent move down in 5 waves and assumes it is the first wave of the new leg lower, if so we can expect a bounce, that bounce has already made it to the level of the previous wave 4 ( a common Elliot wave rule) but we would like to see it get high enough to test the trend line it broke earlier, that will also get price to $60 where we expect US producers to increase production.
One potential problem is the Mexican hedge, Mexico managed to hedge its 2019 production for $55, it cost them billions of dollars but it means some large institutions think that $55 might be as low as it goes this year. Still if it gets over $60 even a sell back to around $55 would represent a good return.
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