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Hansen: Brent Crude is clawing its way towards a bear market

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Since its peak in June, the price of Brent crude has fallen 19%. As Saxo’s Ole Hansen notes, it means we are close to a bear market, the definition of which is a 20% drop from recent heights. As speculation continues that Saudi Arabia will maintain its output, the likelihood of reaching this point increases.

OPEC is currently producing an extra million barrels of oil a day above its stated target. Hansen says this is creating an oversupply which is being driven by the return of Libyan oil. However he points out that this could be disrupted by increasing conflict within the state.

Hansen also notes that Saudi Arabia’s decision to cut prices to Asian buyers is about staying competitive. He says that because Brent is considered better quality and is now cheaper, Saudi felt it had to act.

Meanwhile WTI’s discount to Brent is at a 14-month low. Hansen’s trade tip is to sell WTI and buy Brent as a spread.