Since I last wrote on April 19, crude oil has steadily slipped to just beneath $48 per barrel. The June Crude futures are currently trading $47.60, after making a year to date low of $47.30 earlier in the session. At this level, I would surmise we are closer to the low than the high. Over the last year, June crude has traded between $45 and $58 per barrel. For those looking to hedge upside risk, or speculate that crude will stay hemmed in the past year’s range, it would make sense to start dipping one’s toe on the long side. 

A steady beat of bearish news has been plaguing the energies markets over the last couple weeks, with reports that an increase in US and Libyan production has all but erased any production cuts announced by OPEC. Also, news that OPEC compliance has slipped from 92%, to 90% has weighed on crude. At the next OPEC meeting on May 25, the members will decide whether to extend the cuts. It looks increasingly like they will with crude prices below where they were in November, when the first cuts since 2008 were announced.

Something else to keep in mind is that Congress is looking to shift attention away from Russia and towards Iran with a slew of new sanctions. Low risk/high payout option plays predicated on a bounce in crude over the next several months look attractive at these levels as well.

 

Jun ’17 Crude Light Daily Chart