Are Stallions On The Go In Crude Oil ?
Strategic oil traders for commodities or financial trading desks have to contend with various considerations including the need to meet contracted sales/deliveries while optimizing the buying operation within the effective working timeframe...while staying net positive; ensuring that positions are squared positively and adequately hedging trades according to risk appetite. The question is: how to optimize buying operations so that deliveries are met, trading profits are secured and inventories are available at the right cost for future sale contracts. The interplay of working capital is an intricate and complicated endeavor and depends on individual business circumstances, however, understanding the market and trying to get a hang of the market structure in terms of wholesale and retail level prices is a good concept to work with.?
Given that most crude oil transactions are linked to Brent or WTI in one way or the another, we need to understand the market structure from a trading perspective, not from a charting perspective. The charting perspective talks of studying the market from a support and resistance level paradigm and determining various levels for pivoting sale purchase decisions. On the contrary, our trading perspective looks to determine wholesale and retail zones in view of market actions. And the zones are not that difficult to identify.
On 4th June, Brent crude hit a strong wholesale zone around 73 and traders working at the edge of markets were able to initiate and build strong profitable long positions. Why was that a strong wholesale zone; because we reached a level last hit in February 2024 and which demonstrated a sustained demand profile and leg-up right till 87.
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Markets generally demonstrate 3 to 4 strong moves in a year and for a strong move to materialize, there needs to be a strong counter move that washes the market. The consistent decline from 87 to 73 was a washout and shakeout of sorts given the geopolitical situation all around. ?Hence the argument that we are now coming off a strong wholesale zone.
So what will show that the demand profile is strong here…if it is. We should not see a strong down move at this stage of the rally. We may see some offloading, however, it should come across as a buying opportunity for bulls. And we need to be prepared for all sorts of moves.