Oil Extended Gains, is This the Start of a Bull Run?

20 May 2024

By Priyanka Sachdeva, Senior Market Analyst for Phillip Nova

 

Various chess pieces are moving in the oil market’s backdrop leading to volatility and uncertainty. Extending gains from last week, both benchmarks WTI and Brent, started the fresh week on a positive note after promising cues from mainland China. The Chinese authorities are rolling out a massive, $1 trillion bond issuance this week- Beijing’s first major act of fiscal stimulus. Oil also drew support after news of the US government saying it had procured about 3.3 million barrels of oil to refill the Strategic Petroleum Reserve. The US authorities hoarded oil at nearly $80 a barrel, instead of the usual $70 a barrel, which is seen as clear evidence of a bullish oil market.

 

On the daily chart, we can see that crude oil managed to breach below the trend line joining recent lows, twice this month but eventually rallied back above it leaving behind a hammer candlestick pattern. Oil currently hovers just below the resistance zone of $79.80-$80 a barrel, which coincides with 20 Day moving average. Markets might find the Bears stepping in with a stop loss of 50 Day Moving average of $81.90 per barrel for a break below the trend line with a better risk-to-reward setup. Ideally, with global economic concerns in the short-term, the resistance zone of $80 per barrel in WTI on a daily chart should hold.

 

The US Dollar took a nose dive after US April inflation reports showed mild easing and labour markets reflected signs of easing. The easing US Dollar makes investing in Crude oil lucrative but the mixed demand side cues across the globe have been limiting the upside in oil. Adding to the tailwinds is the news of the Iranian plane crash leading to the death of President Ebrahim Raisi, just a couple of months ahead of the Election. Geopolitical stress has been causing enough traction in oil prices since the beginning of 2024 and markets fear that the news could further disrupt the global flow of oil supplies.

 

Investors are advised to be cautious of incoming data, as we believe that the potential downside risk is much greater than the potential upside risk. The recent market correction appears to be stabilising in the new week, but if we receive negative economic indicators at these levels, those bearish on oil may attempt to retest $70 per barrel zone. The current strength in oil is purely a function of easing US Dollar especially, as past couple of weeks’ markets shunned away from the “war premium” after news of Israel-Hamas’ resolve surfaced. It seems that the demand-side narrative has become more dominant than supply-side concerns. The US inventory drawdown points to a steady boost in demand ahead of the summer travel season while the International Energy Agency cut its demand forecast for oil in 2024 slightly, denting sentiments.

 

Oil markets are widely awaiting the outcome of the Organisation of Petroleum Exporting Countries meeting scheduled for June 1, where the cartel is expected to continue the “voluntary cuts”. The extension can lead to tightly supplied markets and any rebound in demand from China, which apparently is hoarding cheaper oil, would add to bullish bias in oil prices.

 

Trade the Crude Oil Futures with Phillip Nova

Take a view on crude oil. Trade the WTI and Brent crude oil with Phillip Nova. Open an account now

 

Trade Stocks, ETFs, Forex & Futures on Phillip Nova

Features of trading on Phillip Nova

  • Gain Access to Over 20 Global Exchanges
    Capture opportunities from over 200 global futures from over 20 global exchanges
  • Trade Opportunities in Global Stocks
    Over 11,000 Stocks and ETFs across Singapore, China, Hong Kong, Malaysia and US markets.
  • Over 90 Technical Indicators
    View live charts and trade with ease with over 90 technical indicators available in the Phillip Nova platform
  • Trade Multiple Assets on Phillip Nova
    You can trade Stocks, ETFs, Forex and Futures on a single ledger with Phillip Nova
An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

More Market Trends

Strategic Futures Trading During US Election Week

Read More >

Stock Market Trends and Election Outcomes: Getting Prepared for the 2024 US Elections with the Phillip Nova 2.0!

Read More >