Oil has been consolidating its gains before a move lower
Brent crude oil has been trading in a range for the past couple of sessions with the main risk for now being skewed to the downside. After a number of oil wells in the U.S. were forced to shut down, the prices of oil both the global Brent oil and the U.S. Light Sweet Crude have rallied substantially from the lows seen in January.
Currently prices for Brent crude are hovering around $61.70, which is the middle of the range observed during the past couple of days. What we would be doing is to look at the dynamics of the prices above $62.00 and below 61.20.
There is a big likelihood that the price of oil will keep consolidating within current ranges, but we see a slight risk to the downside. Calls for $20 oil by Citigroup have materialized a big rally as usually is the case. When big baks start calling big numbers, the prices are usually taking the exact opposite direction.
Looking at the charts we see a very strong support level around $60.70. In case prices drop as low as that level, we would be looking to buy daily calls there. If prices move towards the top side we would be keen to buy daily puts. By higher levels we mean that a re-test of the top range at $62.50 is necessary.
With the major supply and demand issues out of the way, we are likely to see a protracted period of consolidation between $60 and $62, this is why it is important to play the ranges and don't bet on any more dramatic moves than we have already seen these past couple of weeks.
Daily puts above $62.50 and daily calls below $61.30 for the more aggressive players remain the most likely outcome from this session. Stay safe as some dismal news about Greece are likely to exert pressure on all commodities.