I have exited my short position in Brent crude. The market was down from my entry point but I had lost some money on two rolls, so I got out roughly flat (a very small loss, but I don’t try to finesse these things). There are two aspects to my decision. First, the short-term economic outlook is very uncertain, with Europe heading for recession, EM potentially slowing and the US looking relatively strong (although growth is far from being absolutely strong). Political action in Europe could lead to short-term rallies and my stops being taken out. I remain short EUR/USD and S&P 500, but I thought that the Brent position gave me too much short exposure. Second, there were factors specific to the Brent position that made it unattractive: the negative roll yield, and the idea of EU sanctions on Iran. On the latter point, I mentioned the day when the market rallied on fears of an Israeli bombing campaign as a good day to go short, and so it proved; but unlike a bombing campaign, EU sanctions are a genuine threat that made my stop (120) look less of a sure bet as a price that would be the wrong place for the oil market in the coming months. In other words, the downside risk on this trade no longer appeared acceptable.

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