Trading: stick with oil

published 28 April 2017

The crude-oil rollercoaster continues. After surging by more than $5 to $56 a fortnight ago, it has now given up most of its gains. Indeed, at one point it nearly hit our new stop-loss price of $50.99. The reason for this fall was data that showed US stocks of crude oil unexpectedly increasing. This suggests that American shale oil producers are responding to any cuts in the production of crude oil, such as those agreed by Russia and Saudi Arabia, by increasing production.

I've become increasingly frustrated by the performance of this trade, which I first recommended in January (Issue 828). It's not just the fact that it is now around $343 in the red but also the fact that I'm beginning to suspect that the fundamentals of the trade don't really support a rise in the price. While I'm going to give it another fortnight before I make a definite decision, if there isn't any noticeable improvement then I'm going to seriously think about closing it out, because there are more productive opportunities out there.

On a happier note, gold continues to do well with its price around $1,263 per ounce. At £7 per $1, this means that the profits on it almost perfectly balance the losses that I've made on the oil trade. Looking ahead, recent weak US economic data is likely to discourage the US Federal Reserve from rapidly raising interest rates. In turn, this should help gold by reducing the upward pressure on the dollar.

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As a result, I'm more than happy to let this trade run on for the foreseeable future, though of course I'm sticking with the stop loss of $1,175, just in case something happens that causes it to drop. As I've noted before, the evidence suggests that gradually raising the stop-loss on winning trades is a good way to ensure that you keep at least some of your winnings.