A Bull & # 39; s Guide to Oil Markets

Hedge fund you don't know something: There are still reasons to be bullish about oil.

Right now there is nothing that moves the oil price needle in any real way outside the US-China trade war. Everything is related to the two power houses concluding an agreement, including global economic growth, and hence oil demand.

But while it may seem impossible to try to find a bullish hue in the oil markets, it is not.

And while the markets seem to have been decidedly bearish with supply / demand imbalances that drowned out everything else to the extent that even an epic event like Saudi Aramco drone attack that led to it The biggest disruption in supply in history only provides temporary support for prices, hedge funds see the light at the end of the tunnel.

So it is time to put on rosy glasses and imagine more scenarios that could give some optimism in the oil markets at selling prices on a bullish trajectory again.

When a trade agreement is reached, then geopolitical risk will again be able to move the needle, and the rig count will have a decidedly more significant impact on prices.

So if you really want to follow the bulls, you have to keep an eye on the hedge funds, which appear to believe that oil has room to rally, largely thanks to the positive move on a US-China trade agreement.

During the first week of November, hedge fund bets at WTI hit their highest in a month. And although US shale producers pump crude oil as crazy and add to supply, hedge funds see reduced drilling as a sign of lower output next year.

The hedge funds are not full on the bull, their net long positions are still much lower than they were a few months ago, but they expect financial improvement from a trade war postponement and that takes them out of the oil's bearish playground.

The net long position for hedge funds is the difference between bullish and bearish efforts. And on Monday, Bloomberg reported that the money managers' WTI net long position rose 1[ads1]1 percent in the week ending November 5, as did net bullish bets on Brent.

Here are three scenarios that could support higher oil prices in the short and medium term:

# 1 China Deal

The protracted trade war between the world's two largest economies has led to a general suffering in the global economy.

The negotiations between Washington and Beijing have been long, periodic and prolonged with much bad blood from both sides. The situation was so choppy at a time that it took top U.S. retailer Robert Lighthizer to read China's rebellion to get the broken talks back on track. Related: US Shale Is Far From Dead

They say everything is good that ends well – finally there seems to be some light at the end of the tunnel after the Trump-led team announced that they have completed "Phase One" of the trade negotiations.

In the interim agreement, the warring nations agreed to a gradual reversal of additional tariffs.

Although investors such as private equity billionaire David Rubenstein were far from the ideal solution, they believe it will be enough to relieve financial tensions for the next year.

Back in August, Helima Croft of RBC Capital Markets predicted that a China deal could support the $ 60- $ 66 series WTI award. It's almost 12 percent higher at midpoint than Monday's close of $ 56.50.

So far, oil markets have remained indifferent, underscoring how much damage the trade spat has inflicted on the global economy.

Perhaps all these circumstances of trust that bounce back after an initial agreement were a touch optimistic.

# 2 Geopolitical Risk

Rising geopolitical risks, especially in the Middle East – home to more than 60 percent of the world's oil reserves – are theoretically bullish for oil.

Tensions between Iran and Saudi Arabia reached a boiling point after the September 14 attacks on Aramco's oil plant.

Meanwhile, the New Iran Deal remains a very emotional issue – especially since Iran, in a new spate of action, has started a new round of uranium enrichment work in the Fordow area. The International Atomic Energy Agency will release a new report this week to clarify whether Iran has fulfilled its obligations.

The European Union is desperate to make a new nuclear deal with the Islamic Republic to replace the 2015 agreement that Trump drafted last year. The EU is trying to make a specially-crafted vehicle that will help the bloc circumvent US sanctions and continue to buy Iranian oil. So far, the sanctions are clear, with oil exports from Iran on a continuous decline.

In the most likely case that Trump and his European allies are unable to obtain a new deal, tensions between Iran and Saudi Arabia are likely to escalate.

A week ago, the UAE unveiled Edge, a defense conglomerate that will focus on cyberattacks and repel military attacks in the wake of the Aramco attacks. Iranian saboteurs will therefore be sent off work for them if they try to launch another attack on a scale anywhere as large as the last.

While the chances of a complete war with the United States or Saudi Arabia appear slim, tensions in the region are likely to remain high and increase supply risks.

# 3 Declining inventories and stock figures collapse

At the end of October, oil prices rose 3 percent after the U.S. Energy Information Administration reported a surprise fall in in US commodity inventories . The EIA reported that commodity inventories fell by 1.7 million barrels, while gasoline stocks fell more than expected.

The organization revealed that, on a one-season basis, gasoline demand in the United States has been at a peak since at least 1991. [19659003InthemeantimethenumberofAmericanoilrigshasexceededthemonthlyaverage Related: The world's largest EV market track for 1945 [1959] The Baker Hughes report showed a decline of 5 rigs from the previous week to 817, and a massive fall from 1057 rigs reported at a similar time last year.

So far, production has continued to rise amid rig count collapse simply because drillers are focusing on bringing the significant use of unfinished wells online. Obviously, this can only take so long, and at some point, production is likely to be compromised.

A significant decline from the world's largest oil producer is likely to have a positive impact on oil prices, although this is unlikely to happen in the near future.

Bullish Bottom Line:

There are different ways to be bullish on oil. You don't have to go full bull and take up big long-term positions. Right now is the perfect time to play the short-term buy and sell game, buy a dip and sell on the bar as long as the WTI trades at a bottom range of between $ 49 and $ 55. In other words, you can be a trading bull without being an investing bull as long as commodities remain in their current trading area, which is already more attractive than it was last year.

By Alex Kimani for

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