By IFCMarkets

Demand may change depending on the season

In this review, we recommend studying the personal composite instrument (PCI)
Oil against Gas. It reflects the dynamics of the portfolio from futures on oil of two brands- Brent and WTI against the futures on natural gas in the US. The PCI may increase if oil prices rise, and natural gas prices drop.

The main idea of creating such PCI is the attempt to use the factor of seasonal change of demand. Theoretically, as summer approaches, the demand for natural gas for heating may decrease in the US. Meanwhile, the increase in the demand for petrol is not excluded with the start of the summer holiday season. We may note the growth of this personal instrument in April 2013, 2014, 2015, and 2016. The main factors supporting the growth of oil prices are: the suspension of the production in large oil fields in Libya and in the British part of the North Sea, as well as the plans to extend output cuts of OPEC and independent producers through the 2nd half of 2017. The growth of the US reserves does not contribute to the decrease of oil prices yet, as it is not accompanied by a significant increase in the production. Currently, US produces only 190 thousand barrels per day more than in early April of the last year. The main risk for the growth of this PCI may become the continuous increase in natural gas prices. Its average production over the past 30 days in the US currently amounts to 70.1 billion cubic feet per day. This is by 3.8% less compared to the same period of the last year and by 4.5% below the 2015 level.

On the daily timeframe, SumOIL/GAS: D1is trying to correct up after a strong slump. Further price increase is possible if the dynamics of world oil prices are more positive than that of natural gas in the US.

• The Parabolic indicator gives bullish signals.
• The Bollinger bands have markedly widened, which means higher volatility.
• The RSI is below 50. It has formed a positive divergence.
• The MACD gives bullish signals.

The bullish momentum may develop in case SumOIL/GAS exceeds the 1st line of the Fibonacci retracement, the last fractal high and the 200-day moving average at 0.664. This level may serve as the entry point. The initial stop-loss may be placed below the last fractal low and the Parabolic signal at 0.609. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop level at 0.609 without reaching the order at 0.664 we recommend cancelling the position: the market sustains internal changes that were not taken into account.

Technical Analysis Summary

Market Analysis provided by IFCMarkets