Migrating demand
Western demand replaced by East
We have a lot to come over the course of this year, so I don't want to go making any grand calls or forecasts. This will be a light report and I will look at next week's report to add more to the oil outlook. To make my views clear, I am bullish oil for the 2nd half (H2) of the year and neutral for H1.
As the title suggests, Indian petroleum consumption has been surging through 2024. A rise of 3.5% in 2024 on 2023 stats. Thanks to John Kemp for the chart. It is easy to see that any demand slump we might see in the west last year was replaced by our Indian friends.
Moving onto the tariff risk. Trump is looking to slap both levees and tariffs on oil from Canada and Mexico. The 25% tariff on Canadian oil is a hell of a negotiating stick given that Canada accounts for 50% of US imports. We will have to wait to hear more from Trump once he gains office and see how hot and heavy the administration comes with these measures.
Overall at this point in time, I see oil as pricing in the upside. The reasons for this I covered in my last 2 reports. My last report priced in this scenario as below.
This is what is happening.
A continuation of this general upside is in play. This is what we got through the holiday break. So let’s jump in now and take a look at what to expect this week.
WTI CLG25
The level of selling and delta activity i.e increased open interest at low of range, increased open interest at high of range, was interesting in oil over the last 2 months. Traders were cautious to hammer the lows around the MAY/JUNE 2023 $67.03 level, and buyers were nowhere when we rallied to yearly PVAL (PVAL 2024) $71.54s. Once we got to the point in time where the time spreads would kick in 6th to 9th December, the buying seemed to be well supported and we got long the March 25/Sept 25 spread.
Here is that spread. It is currently up 618%. If you are interested in learning how to spread trade commodities, please do email me tim@duggancapital.com
Yes +618%. This is why we learn to trade commodities spreads.
As we look to the immediate market for the week ahead, I see that there are likely targets on the upside that the market wants to trade. With good resistance there, mainly at the 2018 non back adjusted high of $76.90s. Market is currently at $74.07 in the pre market. Once we hit this target, I do see significant downside for the rest of the week or into next week on front month oil. I think selling may come in at this upper level and drive us back down to YPVAL $70.54 (Not to be confused with last years PVAL $71,54)
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