Lingering impact of Hurricane Ida sets up bullish break higher for crude oil
Tony Sycamore September 13, 2021 12:44 PM
This time last week we covered the Coup in Guinea that has triggered panic buying in aluminium.
Guinea competes with Australia as Chinas largest supplier of bauxite, the world's most common sauce of Aluminium. In 2021 it produced more than 90mt of bauxite, about 25% of the global total and about 50% of Chinese imports. Aluminium closed 7.3% higher last week and is up 48% year to date.
There are signs of a similar near-term imbalance in the crude oil market following the lingering impacts of Hurricane Ida. More than two weeks after the hurricane made landfall, almost half of the crude output in the U.S. Gulf of Mexico has yet to be restarted.
As noted by U.S. Investment bank JP Morgan "Over the past decade of tropical cyclone activity, no storm has left so much Gulf of Mexico crude oil production offline for so long, placing the crude market squarely in unprecedented territory."
Goldman Sachs agrees with JP Morgan's bullish assessment and notes that Hurricane Ida has been unique in having a net bullish impact on U.S. and global oil balances.
On an aggregate basis, Goldman's estimate that Hurricane Ida has caused a decline of 30 million barrels of inventories, more than offsetting the 15 million barrels of sales anticipated from the U.S. Strategic Petroleum Reserve in October.
Crude oil is a market that exhibits a strong seasonal pattern that I have found particularly useful in the past. Generally speaking, the price of oil rallies heading into the Northern Hemisphere summer before peaking in October and retreating into year end.
Whether the same pattern will occur in the final months of 2021 remains to be seen. However, with a seasonal tailwind blowing for another three weeks and a supply shock in place, it would seem a good time to review the chart of crude oil.
As can be viewed on the chart below, crude oil appears to have completed a three-wave corrective pullback from the $76.98 high to the $61.82 low of August. A break and close above recent highs and trend channel resistance at $70.50ish would indicate that a retest and possible break of the July $76.98 high is underway.
Source Tradingview. The figures stated areas of September 13th, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.