According to a Bloomberg report, the $110/$130 call spread on Brent crude in May and June attracted bets equivalent to about 30 million barrels.
By Bhavik Patel
Oil prices are in the range of 5800-6200, but there are also fluctuations within this narrow range. Prices react to every geopolitical event in the Middle East, especially in the Red Sea. We have seen crude oil prices fall due to higher-than-expected US inventories and falling demand, but in the face of opposition, Houthi attacks on ships in the Red Sea have created a favorable tailwind. which they need to maintain. floating prices.
Recent attacks on Yemen by US and British forces will also escalate the conflict, as the Houthis will also retaliate for the attack. These events will give any correction in crude oil prices the opportunity to take long positions. Hedge funds and other money managers ended the final week of 2023 with the highest number of new bearish positions in futures and options since March and the second-biggest increase in volume. weekly short additions since 2017.
The reason we like to hold a long position is the balance between supply and demand, which indicates an uptrend. January’s huge surplus is expected to shrink thanks to OPEC+ voluntary cuts and another Libyan oil field could be closed. US crude oil supply will continue to increase in 2024, but at a slower rate. Traders are optimistic that Brent could reach $110 by April, although we do not expect prices to rise as sharply. According to a Bloomberg report, the $110/$130 call spread on Brent crude in May and June attracted bets equivalent to about 30 million barrels. Buyers of this special spread option will benefit if oil prices reach $110/barrel by the end of March and the end of April, when the May and June options expire respectively.
Therefore, we believe the downside is limited but the upside will be limited to around $86 to $90. However, fundamentals are now pointing to an uptrend, whether it’s a smaller surplus ahead or tensions in the Red Sea, any dip around 5,900 is a buying opportunity.
Expected target is 6,200 to 6,300 and stop loss is 5,800 for MCX.
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