I have been looking for an opportunity to get us in energies but with the OPEC+ meeting being yesterday and there being talk of them increasing output as economies reopen I was hesitant. In a surprise decision OPEC+ decided to keep production where it is, this is incredibly bullish for energies with production already being cut to boost price the only place for price to go is up as demand increasing in reopening economies. This news has sprung us into a new daily cycle in energies with today being day 2 of a new cycle in oil, day 3 in RBOB, and day 3 in heating oil. We track energy cycles using oil as the benchmark for all energies, as you can see below they trade with similar time cycles. These daily cycles in energies typically last 35-45 days meaning we should be looking at a price rally for the next 6 weeks.
This timing coincides well with Moore's data which has July crude oil as a profitable long trade 14 of the last 15 years with an entry date in mid March. We are entering this early according to Moore's but the news from OPEC+ is going to be a large price boost.
These production cuts are a big deal because as spring arrives, driving conditions improve and daily gasoline consumption rises. The industry normally begins accumulating supplies of gas for the upcoming summer vacation and driving season this time of year. That combined with more urgent demand drives gasoline prices higher into summer. Not only that demand for gas but also the need to replenish depleted supplies of heating oil after heavy winter usage generates demand for crude oil. All these factors coinciding should shoot price for energies much higher. Looking at the seasonal data chart below you can see we are just at the beginning of the summer price rally for energies.
I expect to see prices get as high as they were in 2019 with RBOB hitting 2.15, crude oil hitting 75, and heating oil getting to 2.15. We will be trading the July contracts, looking to enter crude oil at 65.35, heating oil at 1.92, and RBOB at 1.99. That would be a $9,650 profit in crude oil, $8,400 profit in RBOB, and $9,660 in heating oil. We will place stops below the most recent swing in each sector, 58.4 in crude oil, 1.77 in heating oil, and 1.856 in RBOB. You can also trade the mini crude oil contract though July volume is incredibly low so you will likely need to trade the April and roll the contract near expiration. Margins for crude are $4,978, gasoline $4,950, heating oil $4,400, and for the mini crude at $2,489.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.