Yahoo Finance

Let's kick it off with oil prices. Let's capturing our attention here this morning. Once again moving to the upside and fears of supply disruption as tensions escalate in the Middle East. We saw five percent climb yesterday. You're looking at another 3% climb in crude here, three and a half percent climb in crude this morning. We want to bring him Bill Barack. He's founder and president of Blue Line Futures. And Bill, it's great to have you. So here we have crude just above 72 bucks a barrel. We certainly have been in this upward trend over the last couple of days as we have been getting some headlines out of the Middle East. And it's my question to you is what does that upside trajectory then look like? Are we going to continue on this trend higher?

You know, I think it's been a good bottoming pattern. There's been definitely some flushes. And really when when the market has traded lower at the lower end of its range, you want to see that sentiment shift very negative. And that's exactly what we've seen. We've seen almost record bearish positioning in the market. And if everybody sold, who's left to sell? So if we do start to rally, there is fuel to take this thing higher. And I mean, look at the 200 moving average, I think around $75 is really a point to look at. We have some significant resistance. We put out research every day for our trading clients about 73 and a quarters a big level that we have to clear. Um, but outside of those two, I mean, I would imagine if the fundamentals continue to stay favorable, meaning Saudi Arabia does not try to take market share, which which which is the outlier right now. Um, but if that doesn't happen, I think $80 to be in the cards before the end of the year.

But we know, Bill, that Saudi Arabia is trying to take market share, and that's just one of the many challenging parts of this sector. You've also got oversupply, lack of demand from China, plenty of geopolitical issues to pick from. Given that, how much room does this rally have left to go?

Well, OPEC, the JMMC is meeting right now. Now, this is the oil ministers of the top producers. And really what they want to make sure is that some of these countries that that are part of OPEC are not overproducing. And so really the messaging that we're seeing very early on in this meeting, which just started a little bit ago, is somewhat favorable and supportive to crude prices for now. So I I think that is something we got to keep a close eye on as the week unfolds. But if we don't hear much about Saudi Arabia really trying to gain that market share, then I I do think that's that's, you know, come out of coming out of this meeting could actually in and of itself be favorable too.

You know, Bill, I'm curious. Just when we talk about drivers here to the upside, you obviously have the unrest in the Middle East. You've got Saudi Arabia's play here. And then also just on the back of the stimulus out of China last week, I guess, how much does that change the supply demand, more so the demand dynamics of the equation that then they may be further support that moved to the upside?

Well, let's talk about a couple things that you mentioned here, and then really get into the the Middle East tensions first. Second. So first, you know, the China stimulus is supportive. I mean, China was exporting deflation. So I think that's something that that for a long time that was a a headwind to the oil market. So their supportive narrative stimulus is is going to help drive crude oil. Now, when Saudi Arabia, if they're going to bring production back online and try to take market share, that certainly offsets it. Got to remember the US is also at at record production as well. But when you look at that, though, inventories are really at the lower end of where we've seen things seasonally. Um, so that's supportive to the market. Now, you you do trickle in this Middle East tensions that's been going on and has escalated now more recently. The question is, does Israel now retaliate and respond to to yesterday's attacks? Then then what does Iran do from there? Do they put a squeeze into the Strait of Hormuz? Do we see different pipeline disruptions? Those are the questions that as we go into say a weekend, if these this continues to escalate, could be a big tailwind to prices in the near term. So there's a lot of factors playing into this market right now.

Yeah, but I'll talk to us a little bit more about what you just said there, the potential blockage of the Straits of Hormuz, because I was reading about that this morning, handling almost 30% of the global oil traffic. How are you modeling that into your forecast here and just the uncertainty surrounding that event?

Listen, I mean, I think if that actually happens and there's a stranglehold there, and there's a serious blockage or serious delays, I mean, we could clear we should clear $80. That's going to push crude oil prices significantly higher. That is a game changer. So keep that in mind. Now, with that said, I mean, I did point to record US production, the potential Saudi Arabia comes out of this meeting and and does have a bearish impact on prices. So the way that we're positioning is really managing our risk. Crude oil volatility coming into the week before yesterday was very, very low, meaning options prices were very cheap. So we've been trading this market using options. Um, one of the positions that we've been been positioned here with outside of some other trading, the core position is we're looking at January 75 $80 call spreads and our commodity trading advisor to CTA, sort of the commodity fund. Um, that is they're a little over about a buck and a quarter a piece on a $5 wide spread. I think those have some good tailwind and managing our risk.

So Bill, bring this back home for me to not just investors, but individuals who are impacted by prices at the pump. In the next six months, what do you think that gas prices are going to look like based on the context of all that we've talked about?

You know, gas prices have significantly lagged, you know, this move here in crude oil just from I mean, looking at some of the gains here today. You know, it's I think it's really tough to say. I mean, I think there's there's a number of forces. I don't want to go on a limb here and say that that we're going to see significantly higher gas, um, because there again, there's a number of forces here and we're going into a presidential election. So I I don't want to go on a limb. Really what we're seeing here and what I would rather put the focus on is the the significant bearish sentiment, meaning there is significant upside here. Um, I I think we could see if something in the Strait of Hormuz was blocked, we could see a 20% rise in in crude oil, um, pretty quickly. I think that would correlate. Maybe at some point gasoline could outpace crude oil. But again, I think we're heading into a presidential election here in the United States, and that does center domestically. What do we see in the reaction of prices? So there are again a number of factors here, and that's why I'm leaning more into options and helping manage our risk amid this volatility.

All right, Bill Berouk. Thank you so much for joining us. Bill is the founder and president of Blue Line Futures.