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Crude Oil Price Analysis: Brent Crude Eyes Critical Test of $60 Support

Crude Oil Price Analysis: Brent Crude Eyes Critical Test of $60 Support

2019-06-04 10:30:00
Justin McQueen, Analyst
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Oil Price Analysis and News

  • Brent Crude Risks Breaking Through $60
  • Hedge Funds Continue to Head for the Exit

Brent Crude Risks Breaking Through $60

The oil market continues to remain soft as the bearish bias towards risk assets in light of rising concerns of a global slowdown weighs on the energy market. Consequently, Brent crude futures are at risk of breaking below $60 for the first time since the beginning of the year as fears mount over a potential hit to consumption growth. Coinciding with the move lower in the spot market, the Brent futures curve has also seen a pullback from its steep backwardation (6-month spreads are now at $1.80 from a prior $4.30), providing an increasing sense that trade war fears are outweighing potential supply side related risks.

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What is Brent Crude Backwardation?

Elsewhere, reports that Norwegian oil workers have struck a wage deal with employers today had led to a strike being avoided, which would have cut production by 440kbpd. Subsequently, keeping a lid on any bounce in the energy complex. As such, focus is on the psychological $60 handle to provide a floor for oil prices.

Hedge Funds Continue to Head for the Exit

Hedge funds have continued to exit their bullish positioning in the Brent crude oil with net longs dropping by a sizeable 40k lots amid the capitulation in oil prices throughout May. Consequently, the ratio of long/short positioning has almost halved from over 2 weeks ago to 8:1 (Prev. 15:1) with risks of a further liquidation of long Brent positioning on the horizon. (COT Commodity report)

Brent Crude Price Chart: Daily Time Frame (Aug 2018 – Jun 2019)

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Oil Impact on FX

Net Oil Importers: These countries tend to be worse off when the price of oil rises. This includes, KRW, ZAR, INR, TRY, EUR, CNY, IDR, JPY

Net Oil Exporters: These counties tend to benefit when the price of oil rises. This includes RUB, CAD, MXN, NOK.

Recommended Reading

What Traders Need to Know When Trading the Oil Market

Important Difference Between WTI and Brent

Crude oil facts

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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