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Main » 2016 » January » 27 » The price of oil depends on program trading
The price of oil depends on program trading

In the last article, dedicated to the oil, I tried to answer the question: "Is it worth it to buy oil?".

Is it worth it to buy oil?

Of course, oil is worth buying at current levels, especially should buy it when it traded below $ 30 a barrel.



Since the publication of the article passed 2 weeks. Last week, oil prices fell to multi-year lows: 27.06 to Brent and WTI to 27.51. After that the oil vigorously bounced up, setting the Thursday-Friday two-day seven-year record growth.


Can you talk about the conclusion of a global trend of reducing the price of oil and the establishment of long-term low?

First of all, I want to note that, despite the strong growth in the Thursday-Friday, the mass closure of short positions, which always happens during a major trend change, as such, was not.

Speculators like held and continue to hold the maximum amount of time for all short positions in Brent. As WTI volume of short positions is also very large. Mass transition traders out of the camp to the camp bears bulls were observed.

If you look at the USO (ETF-fund trading oil), which is a good indicator of investor interest in oil, although the volume of it the last two weeks are very high and close to the historical maximum, but overall driving dynamics USO copies the driving dynamics DBC - ETF-fund tracking the change in the index of wholesale prices for Commodities.


This similarity suggests that no supply / demand moves the price of oil, and something else.

This puts a large question the fact that oil was developed.

This paradox turns out: most likely, 27,06 - a multi-year low on oil, but the conclusion is still too early to make a turn.

Oil may even have repeatedly come back to the area of ​​27-30 dollars a barrel and stay there for a long time.


So what is happening now with the oil, and that determines its behavior?

Currently, oil and other Commodities have a very strong correlation with risk appetite, which is a common indicator of the broad market index S & P500. The correlation is so strong, that is evident even at the micro level: synchronized movement of assets almost to pyatiminutok.

Thus, the main contribution to the growth of oil last week, does not belong to the most oil and trade program, which links the price of oil prices on stock assets.

The minimum value last Wednesday, US stocks made a strong rebound after going up about 5%, and thus allowed the rise of oil and 27 dollars to 32.76 dollars.

The relationship between oil and stock assets sided - it is impossible to specify exactly what an asset is the master and which slave.

If there is good news on the shares, together with the shares rising and oil. If the output is good news for the oil, with oil rising and futures on US stocks.

Let us analyze what will happen to oil in terms of its correlation with the S & P500.

US stocks are now committing a rebound after the sharp fall in the beginning of this year.

When the pendulum swung in much the same direction, then it is as far in the opposite direction.

Therefore, the rebound in S & P500 is probably at the level of 1900 points will not end.

Most likely, the decline that we are witnessing is the beginning of a bear market. Much as indicated.

Typically, the first wave of the fall in the bear market corrected by 40-65%. Therefore, I see the growth potential of S & P500 index at least to the area in 1960, and under the right circumstances, and above 2000 points.

{S & P}

Much will depend on the tone of today's statement by the Federal Open Market Committee. If they will make it such a change, which will remove the very high expectations for the rate, it will be positive for risky assets, oil and negative for the US dollar.

In this case, we will see a continuation of the rebound of oil in the area of ​​33-34 dollars.

On the US dollar and oil prices also strongly influence the US GDP data for the 4th quarter, which will be released on Friday.

I think that program trading still remain for some time, and it will continue until such time until there are stronger on the influence of factors other than risk appetite.

In particular, this may be the US dollar and geopolitics.

In general, fundamental for oil remains very negative. Yesterday's report from the American Petroleum Institute (API) showed that crude oil inventories last week increased significantly - to 11.4 million. Barrels, the highest increase in inventories since 1996, while analysts expected growth of reserves at 3.5 mln. barrels.

On the other hand the price of oil is so low that it is particularly nowhere to fall, and after 2-3 months of seasonal factors in the form of approximation of the holiday season begin to support production.

By early summer, I expect that oil will trade in the region of 40-45 dollars.

Author: Nicholas Ludanov Source


Analysis Alpari
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