Daily and 4H deeply negative (of course, given the last two days moves)
1H moved neutral after last night’s small bounce back and still waiting for a return to negative before selling again. In the meantime I am not selling until it does.
Regarding the choice of UKOil or USOil CFD’s, I have found nothing that would radically determine which of these is better to trade. The only point of interest was that a number of commentaries refer to the daily 200 SMA on the USOil as a reference level widely watched by traders. Since this indeed does seem to have some (rather loose) significance when I looked back over the daily chart (even touched it yesterday) then I will swap to USOil and include this 200 SMA on my charts as a reminder of its possible relevance.
Like I said at the beginning, I am a total newbie regarding Crude Oil and I am extremely interested to see what impact (if any) today’s NFP has on Crude. One could argue that factors like the outlook for interest rates, currency levels and economic strength would be relevant to oil prices but I am not sure it is of such immediate interest relative to factors like oil stockpiles, OPEC production cuts, US pipeline development and shale drilling, etc, that the NFP would produce the same knee-jerk reaction seen in the forex markets. So this is a key interest for me to watch this afternoon (in this timezone).
Edit to add chart:
This is the 4H/1H situation right now + highlighted signals from thelast few days.
What does it mean when one reads about oil being sweet or sour?
Crude oils are (partly) described according to whether they are “sweet” or “sour”. This designation is based on the sulphur content with the benchmark being 0.5% sulphur content.
Sweet oils have a sulphur content below 0.5% whilst sour oil is above 0.5%.
Sour crude is apparently produced mainly in Canada and the Gulf of Mexico, South America and the Middle East.
Sweet crude apparently comes mainly from the central part of the US, North Sea, Africa and the Asia Pacific region.
Interesting … this stirs a vague high school chemistry memory of learning about “high-sulphur oil smelling of rotting eggs” because it contains some hydrogen sulphide. I wasn’t expecting to re-encounter the lesson in such a different context … and talking of different contexts, I’ve also heard a rumour that sweet and sour oil can be found in the kitchens of Chinese rsetaurants. Better to roll over your futures contracts than have them rolling over you, as the saying goes. :33:
Like I said in my first post: “The oil industry had always fascinated me [I]during my schooldays[/I]” - strange how things lie buried in one’s memories and then one day they suddenly re-emerge! - but maybe the memory of rotting egg smells is not so very exciting!
Me too! I was staggered when suddenly the thought of seriously [I]trading [/I]oil became a reality. Kind of neatly coming full circle. I am totally hooked on it already…
I can see you are a veteran futures trader! Hope you didn’t learn it the hard way though! Still, I guess a 1000 barrels of oil is easier to deal with than a ton of pork-bellies on your front lawn back before they ceased in (was it) 2011! (Who on earth used to eat pork-bellies anyway???) or was that what the sweet and sour was for? maybe?
Either way, the hourly chart has remain firmly closed against a sale all morning and soon we have NFP - maybe after that …
Edited to add: curiosity got me to find out that pork bellies are actually the raw material for bacon - that explains everything - and I [I]would [/I]actually prefer a pile of bacon to a pool of crude on my lawn…
Another terminology used in classifying crude oil is “heavy” and “light”.
It’s a reference to the weight of a crude oil according to its specific gravity expressed in terms of its API gravity. This is a standard used by the American Petroleum Institute from which its name is derived.
It is basically a comparison of the oil’s density to that of water. The division between light and heavy oils is typically 22° API gravity:
LIGHT OIL 31.1º - 45.4º
MEDIUM 22.3º - 30.2º
HEAVY 10.0º - 21.5º
EXTRA-HEAVY 0.1º - 6.5º
The heavier the oil the harder to recover in its natural state and the heavier grades require some form of heating or dilution to pass through wells or pipelines = expensive.
Well there was a reaction of a kind to NFP in USOil but not particularly aggressive and relatively short-lived. The below 5 min chart shows EURUSD close in blue overlaid with USOil close in red.
I think it is clear that there is no tight, direct correlation here, at least at the short-term level. But one result does not make a rule…
However, there was a reaction and that was all I wanted to know at this stage. I.e. that NFP is indeed another factor to consider in trading Crude.
Short term charts did move back to negative after NFP, to line up again with the 4H prevailing downtrend - and a nice follow-through.
Its been an interesting and rewarding first week in the pits, maybe more volatile than usual after the inventories release on Weds, but clear moves and I learnt a lot! Decided to do some tweeking on the 1H chart settings that I use - it was too slow in reacting…feeling very happy and satisfied - now for some weekend reading about oil and its markets - of course!
Some stuff that I’ve learned that seems to be relevant to oil trading.
First is fibs - strangely in sharp intra day moves I remember that for some odd reason the lower level fibs is where the pause will often happen, not sure if that holds true in the more recent down market but I recall that on the way up it was often watched.
Just checked Wed down move and I see it stalled on the way back up at the first fib, see also that even Tuesdays down move fell just shy of the first fib on Wed - mind you I remember the one to watch was the second fib on the way up.
Hmmm… just checked Wed high to Thur low, there was a recovery of sorts pre NFP, just shy of the second fib - likely just chance since I seldom look at fibs.
The real question is why the direction, why down, why now?
Maybe check the Worldwide count current data - back from June last year.
Just to add to the ‘why now’ - this is how UK traders/readers/investors see the new EPA regime right now.
See the ‘related stories’, the dateline and the reference to fossil fuels - again not important if fake or not, it’s what the market believes is what affects price.
Hi Peterma!
Thanks for dropping by and for your thoughts, I really appreciate that and it gives me some (more) things to ponder over the weekend! Actually, I just reading the latest OPEC monthly report that you mention right now! I was first looking at the CERAweek stuff from this week and then somehow ended up on the OPEC official site and hence the monthly report - looks very useful!
As for the down move this week, as I understand it (remember I’m a noobie in this market :)) it started because of the huge and unexpected increase in US oil inventories published on weds by the US Energy Information Administration (EIA). I believe this again increased to record levels which points to increased US shale oil production undermining the impact of the OPEC agreements to support prices with coordinated production cuts. As I understand it, these OPEC cuts have been unusually well observed by the OPEC members so far with a target of keeping oil prices above $50 level.
There are apparently large numbers of long positions in oil futures (I haven’t checked that) and these are being significantly reduced as a result of the release. Looks like we will be closing on or under this apparently important 200MA tonight which is quite significant in front of a weekend…
"Scott Pruitt, Donald Trump’s head of the US Environmental Protection Agency, has dismissed a basic scientific understanding of climate change by denying that carbon dioxide emissions are a primary cause of global warming.
Pruitt said on Thursday that he did not believe that the release of CO2, a heat-trapping gas, was pushing global temperatures upwards. …
…This stance puts Pruitt[B] at odds with his own agency[/B], which states on its website that carbon dioxide is the “primary greenhouse gas that is contributing to recent climate change”. This finding is backed by Nasa, which calls CO2 “the most important long-lived ‘forcing’ of climate change”.
Wasn’t there once some fairy tale about the Emperor’s new clothes…?
It would seem that this appointment is in line with a general US administration trend whereby the majority of such appointments are people with very deep and strong links with the industries and businesses that the organisation to which they are appointed are concerned with - whether the organisation is a watchdog, supervisory or promotional. Everything is becoming business driven - maybe good for trading environments but not necessarily for the growing multitudes of sufferers in this world whether they are refugees or victims of drought, starvation, terrorism, disease, etc.
Looks like the US will not be interested in observing any global initiatives that restrain US prosperity and evenprefer to undo those initiatives already achieved.
From an oil perspective, that means increased production, exports and infrastructure from the US whilst the OPEC and other non-OPEC producers attempt to support prices with production cuts. Even so, there is a point where, if oil prices drop too low as a result of over-production, then future exploration and extraction is no longer cost-effective and the industry starts to implode upon itself.
I guess the ideal from a US perspective is to maintain a low-but-viable price level but with a greater US share and a reduced non-US share of production and profit. But I don’t see OPEC etc accepting that formula…
In other words, business development and wealth production are now the prime (only?) objectives being pursued in the US, and the only criteria by which success will be measured. Global health, safety and human rights issues seem to now be taking a back seat, or maybe even no seat at all, in US administration priorities.
Activities in the oil industry are divided into three chronological sectors which are defined as:
Upstream:
The upstream sector basically covers all the stages involved in searching for, accessing and bringing the crude oil to the surface. It includes, for example, geological surveying, drilling and operating the wells.
Midstream:
This sector covers the processing, storing, marketing and transporting of the crude. Basically all the activities between production and refining.
Downstream:
This sector is where oil is finally refined and manufactured into products, sold and distributed to the consumers. Often midstream activities are combined into downstream as they overlap considerably.
It’s not all black and white, it’s important to remember the new President’s age, he will remember well, like myself, the first oil shock.
OPEC has been tainted ever since, the last thing that any self respecting President wants to do is to give those guys any semblance of oil price control ever again, they enforced a 3day working week, major power outages.
This was at a time when coal was still a major feature of energy.
This 1970’s history is part of the reason that Saudia Arabia remains an important western ally and maintains a certain independence from OPEC thinking.
Should explain that the 3 day week was a UK reaction to a coal miners’ strike, the option of oil use was limited due to oil price being raised re opec.
Thanks once again Peterma for another really thought-provoking post! A Sunday afternoon reflection and ponder coming up…
Indeed it is not black and white - far from it I think! In fact it seems nowadays everything is at least “50 shades of grey”! Thanks very much for that link, it was very interesting reading! In terms of oil it highlights precisely the factors that make oil so important, powerful and volatile - and so fascinating:
Supply (production) levels of oil are [I]inelastic [/I](it takes a long time before new resources are found and brought on- stream)
Demand is[I] inelastic[/I] (consumption levels cannot be easily adjusted with any great significance in a short time)
But availability can be adjusted almost [I]instantaneously
[/I]- And price can be adjusted almost [I]instantaneously
[/I]- Every country needs it for survival
Put those five criteria together and we have a fine explosive recipe that is potentially ready to erupt at any time like the best of volcanoes… that’s why I am only interested in day trading it here!
Actually, from what I read here, was this not the [I]OAPEC [/I]members (i.e. just the Arab members of OPEC plus Egypt and Syria)?. And did not include the[I] other[/I] members of OPEC.
Maybe it is not totally fair to blame OPEC for the oil shock as its roots are buried in the Israel-Syria conflict and the US decision to intervene there (rightly or wrongly). The issue was a local hotspot and the oil embargo was a reaction specifically to that “interference” and not necessarily a unilateral attempt simply to take advantage of demand and make huge profits.
As with many commodities (including human slavery) the affluent and powerful West has a history of exploiting the valuable resources of undeveloped countries and making big profits for its own companies. This is still prevalent today where many of the goods that make up our high living standards are priced artificially low because they take advantage of low salaries and costs in undeveloped countries.
In that link it describes OPEC as originally being an [I]“informal bargaining unit for resource-rich third-world countries. OPEC confined its activities to gaining a larger share of the profits generated by oil companies and greater control over member production levels. In the early 1970s it began to exert economic and political strength; the oil companies and importing nations suddenly faced a unified exporter bloc.”
[/I]This reminds me of a saying “only break the law if it leads to power, otherwise it is best to obey the law”. In this case OAPEC took on the “law” of western supremacy and actually found itself powerful. But the problem with all power ultimately is whether to use it or abuse it.
That particular period of history, say, the latter half of the 20th century is, I think, intensely interesting and covers a plethora of huge, varying factors and “players” on the world stage. The post-war world was rising from the ashes and there was work in abundance and an insatiable demand for all kinds of resources. There was a victorious US and a communist USSR fighting for supremacy, there was a new -found freedom amongst youth with all kinds of movements and events like the Beatles, Carnaby Street, Flower Power, LSD, etc. But there was also the Vietnam war, Woodstock, Ohio, Bob Dylan and those never-to-be-built- again American fuel-guzzlers. There was Bretton Woods, the break from the Gold Standard, high inflation, industrial unrest, and everyone was getting wealthier. Air travel was widening leisure possibilities, computers started to become household items, communications changed inconceivably with everyone owning a TV (and even in colour!), the introduction of the internet, and mobile phones.
Then came the digital era and everything is changing again…but that is a chat for another Sunday afternoon
No significant price change over the weekend but the market still looks weak. Weekend reading suggests that the key issue is still whether the OPEC coordinated production cuts agreed at the end of last year can still support prices. The daily chart shows how prices rallied immediately after the agreement and remained above the $50 barrel level since then, supported by ongoing encouraging news that OPEC members were indeed complying with the agreement with some 90+% success.
However, the simultaneous, unexpectedly high, increase in production and inventory levels of US shale oil has brought price levels back to the pre-OPEC agreement level and even settled below the apparently important 200ma level on Friday.
Since the threshold cost of bringing oil resources on line is dropping as a result of new technology then there is every likelihood that the US would prefer to keep crude oil prices low, and production high, as a boost to the economy and in order to reduce (and reverse) dependence on oil imports.
On the other hand, low oil prices are a major concern to those countries (including the Russian Federation) whose economies are highly dependent on oil export revenues. They will not (and cannot) tolerate continuing cuts in production levels, especially when they seem ineffective anyway, and will be even more reluctant to agree to further cuts.
So it would seem that the front row issue right now is how the trend in US production continues and how the OPEC and other producer countries react to it.
That would make this Weds 15.3. a key day to watch with both the EIA weekly inventories data and the US Fed meeting regarding interest rates (which are highly expected to be increased a notch - but since this is already priced into the market the key factor would be if it doesn’t happen)!
So my overall anticipation prior to Wednesday is further overall weakness but with volatile swings. So I am only looking to take quick trades selling into rallies. So entry levels are going to be a key issue here and for that reason I will be trading off a 5 min chart at least until Wednesday’s releases…
Here’s a look at the daily chart showing the change in prices since the end-Nov OPEC meeting:
This from the White House official site concerning energy policy:
[I]“Energy is an essential part of American life and a staple of the world economy. The Trump Administration is committed to energy policies [B]that lower costs for hardworking Americans and maximize the use of American resources, freeing us from dependence on foreign oil.”[/B]
…
“Sound energy policy begins with the recognition that we have vast untapped domestic energy reserves right here in America. The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. [B]We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves,[/B] especially those on federal lands that the American people own.”
…
“In addition to being good for our economy, boosting domestic energy production is in America’s national security interest. [B]President Trump is committed to achieving energy independence from the OPEC cartel [/B]and any nations hostile to our interests.”[/I]
Libya is a North African arabic country with a population of over 6 million. Its economy depends heavily and primarily upon petroleum sector revenues, which account for practically all export earnings. Libya is an important global supplier of light, sweet (low sulphur) crude oil. The majority of its oil is exported to European markets.
Whilst Libya was not a founder member of OPEC, it did join only a few years after OPEC’s formation (1960) in 1962 - a year after Libya began exporting oil. Its proven crude oil reserves are the largest in Africa and among the ten largest globally with over 48 billion barrels as at end 2015. This represents about 4% of OPEC total oil reserves. The country’s oil output is dominated by the state-owned National Oil Corporation (NOC).
Libya’s hydrocarbon production and exports have been substantially affected by civil unrest since its civil war in 2011, when its hydrocarbon exports suffered a near-total disruption. The minimal and sporadic production that occurred in that year was mostly consumed domestically. After a temporary rebound in 2012, GDP again contracted by almost 14% in 2013 and by 24% in 2014, reflecting the ongoing production disruptions.
The country is currently divided between rival east and west powers, which are both still fighting for control over the country’s hydrocarbon facilities:
The eastern forces comprise a collection of militias and eastern tribal forces as well as the remnants of the Libyan National Army. Their forces seized the oil facilities last year. The U.N. called on them to hand them over to the Tripoli government, and when this was refused they were regained by the west, Tripoli, by force.
The western forces come under the Tripoli government which was created under a U.N. deal in the hope of ending the east-west split.
Good volatility so far - as anticipated. I’m not going to post here every trade, but this was a good example of what I am looking at from now to Weds evening.
This is the 5m chart where the ribbon crossed both on the main chart and on the MACD (red-ringed). At the same time it also broke below the band on the 15m chart, not shown here, which confirmed an entry.
As usual ( ) I jumped off a bit too early (I should have normally waited until the close shown in the second red ring) but it was a good move to the close of that next bar - and (psychologically) an encouraging start to the week…
