Crude - breakout or destined to stay stuck in range?

Crude is in the spotlight for many different reasons. The commodity is a key pricing input for other assets. Breakeven inflation rates are being driven significantly by the movements in crude. This obviously has feed through into rates and Fed policy settings.

The rally on Friday has been continued this week as supply and demand jostle for dominance. The G7 meeting has seen leaders pushing for a price cap on Russian oil, yet a severely deteriorating situation in Libya has allowed bulls to press price higher. China’s covid environment is improving too as new infections remain below 100 cases and no major city has a blanket policy lockdown. Combine this with the summer travel season and the demand side of the equation begins to look optimistic. The stronger dollar has seen price pare back some of its earlier gains. France is keen to get Venezuelan and Iranian crude back on the market. That could make this week’s Iranian Nuclear talks interesting.

Crude traders got another curveball on Monday as French President Macron was overheard at the G7 conference telling Joe Biden that the UAE and Saudi’s have very little spare capacity. The UAE Energy Minister, later in a tweet admitted this was the case. This is clearly bullish for the oil price. Biden has also now sent SPR levels to the lowest since 1986, with his releases, which totalled 6.9mln barrels last week. Tomorrow’s OPEC+ meeting is not expected to bring any surprises on the supply front.

Technically, there are two ways traders could play crude. Either think about shorts as price hits range resistance with moves back to the middle of the range or the bottom around $100. The alternative is to tactically position for a breakout trade as price breaches the upside range resistance. The $120 mark and the 9 June high of $126.3 would be important to watch.