Brent Crude Short Trade Research
Weakening Demand, Ample Supply, and Reduced Geopolitical Risk Create Downward Pressure
Hey Crew,
“Feeling in flow.”
The only thought in my mind as I wrote this report last night around 02:00.
It’s been a blissful experience witnessing the progress being made.
Get up, work, get up, fail, get up, learn, get up, work, get up, win.
A continual process we’re all on, we just have to go the distance.
Anyways, crude has been in my peripheral vision. Upon researching the crude market, I see short-side opportunity for the commodity, based on three key factors affecting the current and future supply-demand balance.
Weakening demand, growing supply, and reduced geopolitical risk.
So, let’s dive into the details behind Brent crude shorts, but before I do, let me give you an update on my Dollar Yen trade idea and JGB short play.
Yen & JGBs Short Update
USD/JPY: Bearish
JGBs: Bearish
As you would know I’ve been very vocal with my short view on the Japanese economy, particularly its sovereign debt market, JGBs (Japanese Government Bonds) and its currency the Yen.
Governor Ueda has made it clear in several interviews that for the central bank to consider increasing policy rates they must first see sustainable wage growth above the 2% target. In March, we will hear more about the spring wage negotiations, named shunto, which bring together unions and management of companies with more than 1000 employees to discuss wage increases.
I first shared my short perspective on February 16th, in this article, Why GBP, JBGs and Yen Remain Shortable. USD/JPY was trading at 150.00 on February 16th ‘24 as seen in Figure 1.
Since releasing that report I followed up with a report, Analysing the USD/JPY shorts, last week doubling down on my viewpoint and shifting my perspective on the Yen from neutral/bearish, to bearish. I highlighted how a hawkish tone from a rather neutral policy board member, Hajime Takata was a real signaling point that a shift is taking place within the BOJ. If you want a recap of why I was neutral in the first place, here’s a link to that report.
As of the time of writing, USD/JPY is trading at 147.850, down 2.3% since the first published report.
I’ve got limit orders waiting to be activated on Dollar Yen, whilst I currently hold my shorts on JGB futures as seen in Figure 3. My position on JGBs looks to exploit price movements leading up to and after the Shunto wage negotiations where I expect the BOJ will hint further at their March 18th meeting the plan to remove negative rate policy.
As such, my target on JGBs is in sight with further targets set out upon completion of this position. This position falls into my ultra-short duration pocket due to its relatively short expected hold period.
As always, the aim here at MMH is to provide actionable research across FX, FI and commodities, not just informative research. So we aim to provide a balanced set of arguments supporting and going against each trade idea in order that you may build a framework of “strong opinions, weakly held”.