Oil: Geopolitical tensions remain at a boil – TDS

Crude oil markets may feel oversold, but trend following models hold a war chest of dry-powder to deploy in either direction, TDS’ Senior Commodity Strategist Daniel Ghali notes.

Crude oil markets seem oversold

“While our return decomposition framework suggests that markets have continued to erode supply risk premia over the last week, geopolitical tensions remain at a boil and traders are awaiting more information on Israel’s targets for a strike against Iran, keeping a floor on prices.”

“With prices failing to keep up with downtrend signals, CTAs are still set to cover their shorts this session. The scope for subsequent algo flows remains elevated, suggesting event risks will carry additional momentum over the coming week.”

“Interestingly, nascent signs of reflation continue to strengthen in the cross-section of the commodities complex, suggesting that demand trends could favor more buying activity, offering a cross-current to the erosion of supply risk premia in the event that Israel refrains from targeting energy infrastructure as expected.”