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CRUDE OIL PLUNGE PROVIDES INVITATION FOR TRADERS TO CLOSE THE OPENING GAP

Israel’s weekend retaliation against Iran was in line with media reports earlier
this month, avoiding a provocative attack that could have escalated the conflict
further. Given the lack of surprise, there may be a temptation among traders to
close the opening gap created by the headlines.


By :  
David Scutt
,  Market Analyst
Monday 11:54 AM
10/28/2024 12:54:00 AM

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By :  
David Scutt
,  Market Analyst
 * Limited Israeli response to Iran missile attack sees crude oil gap lower in
   early trade on Monday
 * Targeting of military installations in line with media reports earlier this
   month
 * Crude oil price bounces after taking out October 18 low


OVERVIEW

Israel’s weekend retaliation against Iran was in line with media reports earlier
this month, avoiding a provocative move that could have escalated the conflict
further. Given the lack of surprise, there may be a temptation among traders to
close the opening gap created by the headlines.


GEOPOLITICAL RISK PREMIUM ERASED

Israel’s limited military response over the weekend in response to an Iranian
missile attack earlier this month has seen crude oil futures open sharply lower,
reflecting relief the retaliation was more measured that what could have been
the case. With Israeli fighters targeting military installations rather than
nuclear or energy facilities, it instantaneously stripped out some of the risk
premium that had been built into the crude price, explaining the opening cap
lower.

While the reaction suggests there was scepticism among traders about what
response Israel would take, it was largely in line with media reports earlier
this month that generated an equally large bearish market reaction.

Essentially, traders have reacted to the same piece of information twice, the
only difference being this time was the actual event rather than speculation
before it took place. Sure, it’s a big distinction, but it makes you wonder
whether the reaction was a little overblown considering there was no real
surprise.

With a large gap created by the opening plunge, there may be now a temptation
among traders to close it. One look at crude oil futures going back years shows
you that it’s rare for gaps to exist in the price for considerably periods of
time.




WTI GAPS LOWER BEFORE BOUNCING

Looking at WTI crude futures on a daily timeframe, you can see that after
initially falling through the October 18 low of $68.20 upon the resumption of
trade, the price bounced ahead of an uptrend that began on September 10. Given
the price action since, there’s obviously plenty of willing buyers around
despite the fundamentally bearish news.



Even though the opening gap may be closed in the near future, to make a long
trade stack up from a risk-reward perspective, it would be preferable to enter
at lower levels, allowing for a stop to be placed below the session low or
September 10 uptrend for protection.

If the gap is to be filled, that suggests the initial trade target would be $70
where the price closed on Friday. Beyond that, the 50DMA and resistance above
$71.67 are other targets if the initial one is achieved.

-- Written by David Scutt

Follow David on Twitter @scutty

 


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Related tags: APAC session Crude Oil Trade Ideas

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Economic Calendar

GMT   Event Vol. Actual Consensus Previous Sunday, Oct 27 24h EMU Daylight
Saving Time ends 0 24h UK Daylight Saving Time ends 0 24h CH Daylight Saving
Time ends 0 24h NZ Labour Day 0 24h GR The Ochi day 0 24h CZ Foundation of the
independent Czechoslovak State 0 Monday, Oct 28 Tuesday, Oct 29 Wednesday, Oct
30 Thursday, Oct 31 Friday, Nov 01 Saturday, Nov 02

24h, Sunday, Oct 27 0
EMU Daylight Saving Time ends
Actual
Consensus
Previous
24h, Sunday, Oct 27 0
UK Daylight Saving Time ends
Actual
Consensus
Previous
24h, Sunday, Oct 27 0
CH Daylight Saving Time ends
Actual
Consensus
Previous
24h, Sunday, Oct 27 0
NZ Labour Day
Actual
Consensus
Previous
24h, Sunday, Oct 27 0
GR The Ochi day
Actual
Consensus
Previous
24h, Sunday, Oct 27 0
CZ Foundation of the independent Czechoslovak State
Actual
Consensus
Previous



LATEST APAC SESSION ARTICLES

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By:
David Scutt
Yesterday 10:00 PM
 * APAC session
 * +2
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election jitters
By:
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Yesterday 06:00 AM
 * AUD/USD Weekly Outlook
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By:
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October 26, 2024 12:00 PM
 * APAC session
 * +3
 * * Forex
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   * USD/JPY

EUR/USD selloff looks overdone, whichever way you splice it
By:
Matt Simpson
October 25, 2024 02:52 AM
 * Trade Ideas
 * EUR/USD
 * +3
 * * Breaking News
   * APAC session
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