For traders who are good at trend trading, the crude oil market in 2023 may be a very difficult year.
Is 2023 a volatile market?
The reason why it seems to come to this conclusion too early is that in February 2022, due to geopolitical reasons, WTI crude oil market created a high price of $130 for many years. According to the market price trend pattern, the following year 2023 may be a stage of price adjustment. That is, we usually call the volatile market. This volatile market is the most difficult for traders who are good at trend trading.
In addition, this year's macro environment is full of many very influential variables. These variables may contain the movement of crude oil prices from all directions.
Six factors affecting crude oil market
Last Thursday, Feb. 10, we had a look at the immediate impact of Russia's abrupt production cuts on crude prices and the impetus to the overall trend. In addition to oil-producing countries can continue to use production reduction to try to control oil prices this year, there are several very influential market killers that deserve our vigilance:
1. A sudden change in the Fed's monetary policy.
At present, the market forecast for the change of the Fed's monetary policy is that the Fed will end the adjustment of interest rates in the first half of this year, and will not lower interest rates within this year. If the Fed suddenly changes its behavior pattern, it is conceivable that this unexpected surprise will have an impact on the market.
2) The increase of refined oil inventory, especially the increase of diesel (HO) inventory.
At present, the price difference between the main contracts of diesel oil and American oil is about $42, which has been greatly reduced compared with last year. However, compared with the average price difference in the past five years, it is still at a high level.
At present, the inventory of diesel oil is steadily increasing. Theoretically speaking, diesel oil (Product code: HO.CL) The price difference between them should be gradually narrowed. However, the economic development of diesel demand forecast is likely to be biased, and this bias will also affect the price of crude oil.
3) The speed and intensity of domestic economic recovery.The global energy market is optimistic about the full recovery of the domestic economy this year, but the crude oil market probably underestimates the strength and speed of economic recovery.
4) The possibility of a soft landing of the US economy.
2024 is an election year in the United States, and the main votes of the former ruling party come from the middle and lower classes. Inflation is the enemy that affects the living standards of the middle and lower classes. Therefore, it is not excluded that the US government will restart the mechanism of selling strategic reserve crude oil (SPR) when the crude oil price is high to lower the oil price-fight inflation.
5) Dramatic changes in the Russian-Ukrainian conflict.
At present, the market expects that this conflict and economic sanctions will continue, and any sudden and dramatic changes will have a profound impact on crude oil prices and refined oil prices.
6) The repurchase price level of strategic reserve crude oil (SPR) of US Energy Administration.
At present, it is rumored in the market that the price level of repurchase strategic reserve crude oil by the US Energy Administration is around US $70, but the sudden change of this policy and the change of repurchase price cannot be ruled out.
Combining all these variables, it can be said frankly that traders who like to do trend trading must be extra careful in the crude oil market this year. Step by step.
On the contrary, for crude oil option traders, making full use of the characteristics of options and setting various option strategies for volatile trading are likely to have better performance this year.
Crude oil futures and options
The crude oil futures (product code: CL) and refined oil derivatives markets under Chicago Mercantile Exchange are the largest crude oil derivatives markets in the world. In the crude oil options market of Chicago Mercantile Exchange, it is mainly divided into two parts:
The first is the standard option of crude oil;
The second is ultra-short-term options for crude oil: 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 three days before the expiration date of the corresponding futures, while the expiration date of weekly options is every Friday (OG 1-5)
So what are the benefits for weekly options? WTI crude oil ultra-short-term options weekly options can effectively and flexibly manage short-term market fluctuations and risks without increasing insurance premiums.
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