The March contract, the main contract of US crude oil (WTI), exceeded US $95.82 last Monday (February 14th), setting a record this year (Figure 1). In the following week, although the international macro situation changed rapidly and the crises in Russia and Ukraine became increasingly tense, the crude oil market underwent a short technical adjustment for four days.
The current main contract, the April contract, hovers around $90. From the end of last year to the beginning of this year, I personally predicted that the highest point of US crude oil this year might be around US $96. So how will crude oil prices develop from now on?
Figure 1: The March contract of WTI crude oil futures of Chicago Mercantile Exchange exceeded US $95.82 last week
Is it likely that US oil will break through the resistance point of $96?
First of all, from the long-term crude oil price chart, the current $96 is a very important long-term price resistance point.Figure 2 is the price trend chart of the main contracts of US crude oil (WTI) in the past 30 years. It can be seen in the picture that our crude oil price is currently standing at a critical juncture in history.
Figure 2: Price trend chart of WTI main contracts collected in 30 years
Second, because the current US crude oil price structure is a serious spot premium. From the following QuikStrike futures premium and option term structure chart (Figure 3), we can see that the spot premium of US crude oil in one year has reached $13 (green line in the chart).Futures premium is a very important futures trading concept that is often ignored by people. Because of the long-term discount structure of futures, with the passage of time, every monthly futures contract will try to break through the resistance point of $95.82 created by the March contract after becoming the main contract, just like the current April contract, standing at $90 but continuing to challenge the resistance point of $95.82 again. In this way, time is on the side of the market bear.
Figure 3: WTI Futures Premium and Option Term Structure Chart
At present, the spot price structure of US crude oil futures proves that the spot market supply is still very tight.From this point of view, there is a great possibility that American oil will break through the resistance point of 95.82. But there are rumors that Iran's nuclear deal is coming to an end. If so, Iranian crude oil will enter the international market. This will greatly balance the global supply and demand of crude oil. In addition, if the Fed hawks keep raising interest rates to curb inflation, they are likely to overdo it and bring the US economy from prosperity to recession, so the bear-bull battle in the crude oil market will continue here for a long time.
Crude oil weekly options are more flexible in managing short-term market fluctuations and risks
From the perspective of derivatives trading strategy, buying implied volatility, such as buying cross arbitrage, should be a conservative trading strategy. As for trading instruments, we can pay attention to the crude oil (CL) and refined oil derivatives market of Chicago Mercantile Exchange, which is the largest crude oil derivatives market in the world, including crude oil options market, which is mainly divided into crude oil standard options and crude oil ultra-short-term options, that is, Weekly options.
What the above two options have in common is: 1. They are all American options; 2. They are all spot handover and settled into WTI crude oil futures contracts. The difference between standard options and weekly options is that the expiration date of standard options is the first three days of the corresponding futures, while the expiration date of weekly options is every Friday (OG1-5).
So what are the benefits for weekly options? The biggest advantage is that the time is short, so the insurance premium price is relatively cheap. WTI crude oil ultra-short-term option, that is, weekly option, can effectively and flexibly manage short-term market fluctuations and risks without increasing insurance premiums.
This yearOnly two months have passed, and the remaining trading distance is still very long, especially the peak of gasoline consumption in summer has not yet arrived, so it is necessary to make full and flexible use of crude oil derivatives in order to remain invincible in the market.
$E-mini Nasdaq 100 - main 2203(NQmain)$ $Light Crude Oil - main 2204(CLmain)$ $Natural Gas - main 2204(NGmain)$ $Gold - main 2204(GCmain)$
Comments