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    MARKET EDGES

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Takeaway: Market sentiment suggests investors are preparing for the next geopolitical catalyst

Brent has now closed in the red 3 out of the last 4 days but remains within 1% of year-to-date highs reached last Thursday: 

Energy Markets Muddling Along - Performance Data Oil and Gas

Despite the relatively light volumes and inactivity over the last several days, BRENT, WTI, and Natural Gas are flashing bullish @Hedgeye TREND signals: 

Energy Markets Muddling Along - WTI Trend Chart

Energy Markets Muddling Along - Brent Trend Chart

Energy Markets Muddling Along - Nat. Gas Trend Chart

With the week-over-week increase, investors at NYMEX have the most bullish exposure of 2014. Weekly data from the CTFC detailing futures and options positions shows investors are leaning long 479K contracts in BRENT futures, a level more than 2 standard deviations above the trailing twelve-month average. Net futures and options positions increased significantly moving into this week: +8.9% for BRENT and +8.1% for Natural Gas. 

Energy Markets Muddling Along - Oil Sentiment Chart

Energy Markets Muddling Along - Oil sentiment Table

With all of uncertainty in global energy markets, implied volatility in BRENT spot contracts spiked last week and has held its level, hovering slightly above 1 standard deviation from its trailing 12-month average.

The week-over-week increase in bullish sentiment and implied volatility, coupled with relatively lighter volumes, points to the uncertainty in the next geopolitical catalyst that may roil supply lines.

Energy Markets Muddling Along - Volume Brent WTI Nat. Gas

Energy Markets Muddling Along - Implied Vol. Table

Energy Markets Muddling Along - Implied Volatility Chart Brent

The Hedgeye Macro team will be hosting an expert call featuring Dr. Meghan O'Sullivan, Kirkpatrick Professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project at Harvard University's Kennedy School. The call will be on Friday, June 27th at 1:00pm EDT. We hope to gain a better understanding of the regional tension in the Middle East from someone who has firsthand experience:

Call Details

Meghan served as special assistant to George W. Bush and National Security Advisor for Iraq and Afghanistan from 2004-2007. She has spent two years in Iraq, most recently in the fall of 2008 at the conclusion of the security agreement and strategic framework agreement between Washington and the government of Iraq. Prior to her current post, Meghan was a senior director for strategic planning and southwest Asia in the NSC as well as political advisor to the coalition provisional authority administrator and deputy director for governance in Baghdad.

Please ping  for more information on joining the call.

Ben Ryan

Analyst