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WTI basing in the $60s with risk premium factored in

  • Oil grounded in the $60s following the weekend attacks on Aramco facilities.
  • In response, President Trump tweeted that the US was ”locked and loaded”.

An oil geopolitical risk premium is starting to be factored into following the weekend attacks on Aramco facilities have resulted in a massive disruption in global energy supplies, with Saudi Arabia’s oil production nearly halved and the world’s largest crude processing plant set ablaze.  

While Iran-backed Houthi rebels claimed responsibility, the US administration, including Pompeo, promptly attributed the blame for the attacks directly on Iran.  In response, President Trump tweeted that the US was ”locked and loaded”, pending verification with Saudi Arabian authorities, suggesting that some form of retaliation is not out of the question.  

“Looking forward for energy markets, questions remain in gaging the extent of the disruption, including how quickly the Saudis can reach full production, for how long will other OPEC/non-OPEC nations fill the gap, and whether a potential retaliatory strike will see an additional risk premium emerge for crude,” analysts at TD Securities explained and expanded on the matter below with respect to OPEC’s net move:

OPEC now in focus

  • “While Russia’s energy minister suggested that there was no need for an extraordinary OPEC+ meeting, highlighting that commercial stockpiles are sufficiently large to offset the disruption, OPEC+ nations are expected to immediately ramp up their output.
  • Further, we acknowledge that OPEC nations, and particularly Saudi Arabia, have a direct incentive to downplay the impact of the disruption, as each individual nation would benefit from disincentivizing others’ production. This suggests that media reports likely underestimate the impact and represent a lower bound for any disruption assessment.
  • Nonetheless, in this context CTAs are set to ramp up their net positioning in Brent, and WTI prices are anchored near the 60.50/bbl key trigger level for algorithmic buying.”

Oil levels

A daily doji in the week was followed by a swift and aggressive sell-off of over 6.5% down to trendline support. However, the market bounced hard on the fundamental weekend news which has thrown technicals off.  The upside target was  the 78.6% Fibo and Sep highs in the 58.70s which have been blown out of the water and instead, bulls march all the way to the 26th April spike lows with eyes now on the April highs at 66.58.    


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