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Trade Idea: After Pipeline Shutdown and OPEC Action, Go Long on OIL

12/18/2017 2:45 pm EST

Focus: ETFs

Landon Whaley

Editor, Gravitational Edge

Trade idea: As long as OIL trades above $5.55, then new long trade ideas can be initiated between $6.03 and $5.83. Depending on how much room you want this trade idea to move, use a risk price between $5.71 and $5.55, suggests Landon Whaley of Focus Market Trader.

The iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) was exactly unchanged in the week ending December 15, and has declined 3.0% for the year.

The fund was unchanged last week despite massive headline risk surrounding the Forties Pipeline. This pipeline is critical because the crude it carries sets the price of Dated Brent, a benchmark used to price physical crude around the world.

A “small hairline crack” was discovered during a routine inspection, just south of Aberdeen in Scotland. The pipeline’s pressure was reduced for a full assessment but during that time the crack extended. Ineos, the company responsible for the pipeline, has decided on a total shutdown of the pipeline “for weeks, not days."

At over 400,000 barrels a day, the pipeline’s supplies are the single largest constituent part of the Dated Brent grade, which settles more than half the world’s physical oil prices.

Shell announced Monday that it halted production at two North Sea platforms after the pipeline shutdown..

Keep in mind this shutdown comes on the heels of supply cuts by OPEC, which have reduced the excess inventories from the global supply glut which began in 2014.
This development adds further gasoline to my bullish fire for crude oil.

The Behavioral Gravity of crude oil is extremely bullish right now. To put it simply, everyone and their mother is long black gold.

This behavioral reality does not negate a long trade idea, but it is absolutely a risk that bears monitoring.

Trade idea

As long as OIL trades above $5.55, then new long trade ideas can be initiated between $6.03 and $5.83. Depending on how much room you want this trade idea to move, use a risk price between $5.71 and $5.55.

chart

Your risk price line in the sand is $5.55, if OIL touches that price, even for a second, then you should exit any open trades.

If the trade moves in your favor, then you could consider using the price range between $6.26 and $6.37 as your profit target.

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