Oil Signal - July 7, 2013
By: Andrew Keene
As political unrest in Egypt is likely to continue, it is expected that this will cause oil prices to rise. Recently the military within Egypt has rallied against President Mohamed Morsi, causing bloodshed and violence around the country as supporters of the President are fighting back. With civil unrest likely to persist, it has the potential to incite major problems to Egypt’s energy infrastructure, which is crucial to delivering oil around the globe.
With the potential to see more violence throughout Egypt, which has control of the Suez Canal, investors are mostly in a wait and watch mode. If there were a problem at the Canal it is likely that we could see a spike in oil prices. The unrest within the country might also cause problems for areas within Egypt like the Sumed pipeline, which transports around 2 million barrels of oil per day.
Oil prices are also expected to rise after a better than expected U.S jobs report, which supports the likely increase in demand for oil. From the recent news on unemployment it is highly possible that the Federal Reserve will begin to taper off its bond purchases soon, which in turn will boost investments in commodities like oil.
U.S crude oil futures have hit a 14-month high after reaching over $102 a barrel. This is the highest that we have seen levels since May 2012. Brent crude oil hit a three-month high for its August delivery at $107.88 per barrel.
I think that Oil is headed higher, but I always want to define my risk vs reward.
My Trade: Buying the USO Aug 38-39 Bull Call Spread for $.25 debit
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Greeks of this Trade:
- Currency Pairs
- Crude Oil