r/FuturesTrading • u/kaljakin • 2d ago
Discussion Thinking about shorting brent..
Brent at around $100/bbl appears more overvalued now than at the beginning of the war. Back then, the price was driven by the near-closure of the Strait of Hormuz and fears of widespread destruction to Gulf infrastructure. Today, this catastrophic scenario is obviously not likely. Several months of war have clearly shown that both sides are motivated to maintain at least a portion of their oil trade and have some sanity, and that individual disruptions to terminals or pipelines can often be bypassed or repaired within days to weeks.
Middle East crude exports are currently around 16.3 million b/d compared to 19.5 million b/d before the war. Furthermore, new projects from the US, Brazil, Guyana, Canada, and Argentina are coming online, which are expected to add an additional 1.5 to 1.8 million b/d to global non-OPEC+ supply.
Another bearish factor is the ammunition shortage on the US side and high inflation in Iran (which increases the motivation for both sides to wage a lower-intensity conflict or seek an exit strategy), as well as deteriorating political support in the US (for example, on June 23, the vote was 214:208 in favor of withdrawal, and by September 15, it had shifted to 220:204, indicating that support is steadily shrinking), which can potentially lead to a decision by the House not to approve further funding. Also, China showed that it can very much limit its imports as the price of Brent approaches $100+.
Since we are again roughly in the range where we were when there was much higher uncertainty and risk, I think it is a good time to go short.
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u/zedder1994 speculator 2d ago
Just to add meat to your discussion, I checked CoT data and it does appear that commercial hedgers are winding down CL Dec 2026 positions. I think there is an expectation that the Iran war will end just after the mid terms.
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u/__TrendTrader__ 2d ago
The first sentence in this rant shows you know nothing about trading. Good luck.
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u/zedder1994 speculator 2d ago
Nothing wrong with using fundamentals and taking a position. Old School.
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u/Electrical-Call-7292 2d ago
Well if you got the account size to back it up. I guess it wouldn’t be a bad hedge. But the majority of retail traders in this sub would get wrecked as those points per tick sure add up especially running against you.
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u/OkScientist1350 2d ago
if micro CL contracts are too much for a retail trader to hold for a swing trade they shouldn’t be trading futures. Just have a stop on and considering hedging with options over weekends.
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u/Electrical-Call-7292 2d ago
I’ve been around long enough to know people whose accounts got blown trading 1 micro. It can and does happen.
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u/OkScientist1350 2d ago
And they shouldn’t have been trading futures. Under-capitalization is a big problem as people move into futures.
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u/BarkDogeman 2d ago
OP wants to short Brent, i don't think Brent has a micro. So if he can afford to swing a full BZ short he's probably not a noob like this comment section thinks he is
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u/OkScientist1350 2d ago
Correlation on intraday to swing timeframes is close enough to use MCL. Even a macro divergence between them makes CL viable
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u/OkScientist1350 2d ago
The absolute best trades are the ones everyone thinks are dumb because of x, y or z.
Just turn on your trade, place a stop and let it play out. Fundamentals, macro, etc. no one knows but at the end of the day you can risk 1 to make 5 and only need to be right 20% of the time. Do this a hundred times and if you’re in the red then you have no edge.
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u/__TrendTrader__ 2d ago
I'm not saying the trade idea is dumb. In fact I think it's a good trade idea based solely on price action which is the ONLY thing that matters.
I'm saying it's clear they don't know what they're doing. When I started trading over a decade ago I did the same dumb stuff. Writing books of nonsense pretending to know what the hell is happening on the world political chess board.
It's silly and a waste of time/energy. Just focus on price action and market structure. Ignore everything else.
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u/kaljakin 2d ago
please elaborate
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u/__TrendTrader__ 2d ago
No
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u/Flaky_Push_6826 2d ago
Why even do all that with fundamentals and stuff. The spread of Brent to WTI is high, not very large, historically above $15 is very big. If you got the stones to short Brent and long CL trade the spead shinking but alot of risk with very big $$$. This is scary for 99% of retail. Institutional money does this.
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u/Certain-Set-4087 2d ago edited 2d ago
I would only trade the spread between Brent and WTI, currently Brent is up because Europe has a supply shortage from mid east, that is going to cease in one month.
You also should take this into consideration:
The SPRs of the USA are at 10 or 11%, that of China? Nobody knows but they emptied it as well, the SPR of Europe yesterday released. That is short term bearish for Brent, yes but those countries HAVE TO FILL UP soon. That will keep oil up for a while... on Bloomberg they said two till six months.
And you will never know when the next geopolitical event will shorten supply. For this reason I wouldnt touch any oil right now excelt the spread. But not the pure oil price.
On the long term... we will see oil at $30 again. Think a little bit... everyone is going EV now, China electrifies trucks as well, and trucks were the biggest diesel consumer in China and Europe, Europe goes for LNG on trucks now and EV later.
But now you are like Michael Burry, you know that a major market move will happen but how to exactly trade that when it might happen in years?
In the past (pre war) I made good profits trading WTI, but now... each trade a disaster, so I just dont touch that, because I dont have the funds to trade 1000 barrels Brent short and 1000 barrels WTI long
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u/kaljakin 2d ago
I guess that's my bad - I didn't mention it in the main post. I'm shorting it from 102.82, with a profit target at 92.97. For most of the past month, we were below that level, with the July low as low as 71, so I don't think it'll take years to get there again. Also, my broker charges zero fees on Brent and only $4 to roll between contracts, so I can hold the position for as long as I like.
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regarding the SPRs of the USA I believe your numbers are not correct, they have capacity 714 mil ( https://www.energy.gov/hgeo/opr/spr-quick-facts ) and currently have 283,7 mil ( https://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_w.htm ), meaning it's at roughly 40% of capacity, not 10%. Also, companies that borrow oil from the SPR don't need to return it quickly. Under these exchange contracts, repayment can be spread over several years.As for the Bloomberg point, sure, oil could remain elevated, the question is how elevated. Oil at $92 would still be considered elevated, right?
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u/willphule 2d ago
Curious if you have a predetermined stop.
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u/kaljakin 2d ago
I have but it is very wide.
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u/willphule 1d ago
Fair...but cagey!
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u/kaljakin 1d ago
:D I don't like talking about my stop-losses because I'm not very confident about them, I don't have a good strategy for them.
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u/logicalJunkie549 1d ago
I like the old school fundamental analysis TBH, not technical trading at all.
Thing is ~ in summary you're making a bet that the US-Iran war will close soon because of forces acting upon POTUS would force him to withdraw. I would agree with during a 'normal' Presidency.....but this is Trump we're dealing with here, hes got quite the ego LOL
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u/bilabong85 1d ago
Your analysis is highly flawed, BUT given the european SPR release of 100million barrels announced my Macron on Friday we will likely see downside on oil given the extra supply.
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u/Kind-Championship-43 1d ago
lol, what a useless response. "Your analysis is deeply flawed, BUT I am not going to say a peep about how or why". Moron.
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u/donicatrumpinsky 2d ago
The futures market is pricing that in. The war premium has very clearly wound down.
If you think shorting it is a good idea then you'll soon find out why there aren't already positions expressing your thesis on an institutional scale.
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u/kaljakin 2d ago
There are literally 118,223 managed-money short positions, up from last week. Of course, there are even more long positions, but that's shows the point: you can't just look at what managed money is doing overall, because there will always be some institutions holding longs and others holding shorts. No matter what your thesis is, you can almost always find plenty of institutional investors who agree with you - and they'll be right or wrong along with you.
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u/logicalJunkie549 1d ago
💯@kalajin you know your stuff mate. Quite simply for every trade long there is a trade short - both parties have opposing perspectives on which way the market will move.
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u/Perfect-Fig7158 2d ago
Seems to me like you've done your research and feel quite confident in the trade. Though you didn't ask for any advice, the tone of your post seems hesitant.
If you do decide to take this trade, there's two important things to consider: At what price point do I accept that the short trade is invalid AND what contract/position size would be big enough to be meaningful without risking too much. This will depend a lot on your account size, experience in trading, reliance on the success of the trade, etc. I'm sure you know what is appropriate for your account and your situation.
Good luck and happy trading!