Crude Oil and oil markets

Global Markets Commodities Oil and Gold
33

Not such a quiet day after all…:slight_smile:

Here was a nice ribbon cross on the 5m chart (right hand side) that took price back below the 5m band. This combined with a failure to hold above the Daily 200ma (shown as red dot-dash on the left hand side 1H chart) and prices fallng from the top of the negative 1H band created a good risk/reward sell which paid off unexpectedly well.

I wish I could say that I caught the best of this move, but in fact I missed the first part totally!! :confused: I was not expecting much action today (and I am still not quite sure what prompted this fall, although there are reports concerning significant US shale oil production increases in the immediate future) and was not sitting by my screen watching paint dry all morning.

My näive understanding did not see anything dramatic in the March OPEC report released today to catalyse the move, but I guess all will be revealed soon enough! :slight_smile:

This situation is the other side of the position v. day trader issue! A day trader is in the market only briefly and usually can avoid major disasters such as Black Swans, but they also miss profits from such sudden moves by not already being in the market before they occur. Each trader has to decide which risk/reward scenario suits them best. Personally, I prefer to be sad at missing an opportunity rather than sad from losing the fruits of even years of work on a single disaster like with Brexit or CHF.

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34

Bloomberg:

"Oil declined after Saudi Arabia told OPEC it raised production back above 10 million barrels a day in February, reversing about a third of the cuts it made the previous month.

Futures*tumbled 1.5 percent in New York, reversing earlier gains. The kingdom, which had curbed supplies more than it needed in January as part of a deal to help re-balance world markets and reduce a global glut, told OPEC it boosted production by 263,300 barrels a day last month, a figure that jarred with the group’s own estimate that Saudi output fell further. Russia, Iraq and the United Arab Emirates are yet to deliver all the cuts they promised."

35

There’s been a lot of issues recently affecting Crude Oil and there is certainly no shortage of volatility at the moment.

Tomorrow is the weekly EIA inventories release and this is maybe the hottest issue at the moment. I.e. are the OPEC supply cuts effective or are record US inventories and rapidly increasing production countering the impact of the cuts. As we approach the release data here are some of the key current issues:

The latest EIA Drilling Productivity Report claims that US shale oil production will surge in April with an increased output of 109,000 bpd ( already a big increase from March). These significant and ongoing increases add to the downward supply pressures on prices alongside the persistent record gains in inventory levels.

In the face of the above increase in production, can OPEC and non-OPEC producers show any positive evidence that production cuts will underpin prices and will compliance amongst members continue. In addition, how will the same producers react to the proposal that the cuts are extended beyond the June deadline. Kuwait has apparently already endorsed a six-month extension of the deal but Russia’s Rosneft believes the rapid increase in U.S. shale oil production could undermine the willingness of other members to extend OPEC’s deal to the end of the year due to fears of losing market share and reduced revenues. Failure to extend could lead to a price war to retain market share.

Apparently hedge funds and other money managers and investors have been heavily liquidating long positions as a result of the increasing US inventories and fears of further large gains.

US and other oil companies have successfully and significantly reduced their breakeven prices for opening new production sites, which means production is still profitable even with prices declining to $30 per barrel - which lowers the threshold where production sites are shut down or projects postponed, thus supporting continuing supply levels.

On the other hand, giving some support to prices is the reduction in Libyan output as a result of the violence and unrest. In addition, Nigeria’s current exemption status from the OPEC production cuts may be withdrawn if the deal is extended beyond June, also adding to the overall supply reductions.

Then there is the Fed action on interest rates which are expected to increase by 25 basis points this week. But then the markets will also be considering how many more increases may be coming in 2017.

36

All my TFs from 4H downwards are neutral or, rather, “on pause” in view of the abundant bearish commentaries concerning oil prices (price is still sitting just under the Daily 200 SMA, which stands at 48.65). The Daily chart is naturally still heavily bearish due to recent significant downwards movements. I would need to see prices drop below 48.25 on USOil CFD’s before my short-term 1H=>5m charts will start to signal a new move.

Today we have the weekly EIA Crude Oil stockpiles report (the change in the number of barrels in stock of crude oil and its derivates), released by the Energy Information Administration. It seems the anticipated number is around 3.2mill compared with last week’s 8.2mill. Any significant increase above that will cause a reaction as it will be seen as further undermining the OPEC-led group’s attempt to underpin price levels by cuts in production… And a few hours later the Fed interest rate decision.

I am anticipating another day of up/down volatility as parties adjust their position prior to these releases.

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37

As a (former) forex trader, CFD’s were a new phenomena for me and when I swapped to oil trading I had to do some reading to find out what they are all about. I guess for most people these are nothing new but for me there were a number of issues that were indeed different and I admit I was a bit nervous of them at first.

A CFD (contract for difference) is a contract between the broker and myself. The contract stipulates that the party who gains will pay to the other party the difference between the current value of the asset and its value at contract time. In other words a CFD is a financial derivative permitting a trader to take positions reflecting the underlying financial instrument without actually taking ownership of the asset itself.

This means that Crude Oil CFD’s are contracts with the broker as the counterparty. The pricing is based on the underlying assets, which in the case of Oil CFD’s are the exchange-traded front month futures contracts traded (primarily) on NYMEX (WTI) and ICE Futures Europe (Brent Crude).

The biggest benefit of CFD’s, especially during early trading stages, is that the CFD contract is much smaller than the underlying futures contract. For example, the UKOil CFD has a pip size of only 10 cents compared with $10 for one futures contract. i.e. 100 UKOil CFD’s are currently equivalent to one Brent Crude (ICE) Future. This is a big benefit when starting out trading oil because intraday movements can be very volatile and very rapid meaning that close stops are extremely vulnerable. But with the smaller exposure offered by CFD’s it is possible to manage position size and risk with much more flexibility.

At least with the Crude Oil CFD’s that I trade there are no commissions but the spread of 5 pips is quite painful, especially with short term trades. The nature of CFD’s also means that the pricing is the broker’s own and, although linked to the futures price is a theoretical risk. However, spreads are fixed and that dismisses the risk of “stop-hunting” via widening of the spread. I have two independent mobile apps that give a fast price feed and I regularly compare the screen prices with the apps and so far I have not noticed any discrepancies at all.

CFD’s trade from mon to fri, as with forex, but have a [U]daily [/U]break of 1-3 hours depending on the contract, usually starting at 21.00 GMT).

The other main difference is that Oil CFD’s follow the front month futures contract and, although there is no delivery option or risk, there is a monthly settlement day on which all open CFD’s are automatically closed and settled. The trader, if he wishes, has to then reset the positions with the new front month price. The broker should have a page detailing these dates. For example, any current USOil CFDs open on 20.3. will be closed and settled automatically by the broker at 21:00 GMT when the market starts the daily break period.

I am sure there are other points as well but that is all that comes to mind right now! :slight_smile:

PS: Markets steady and waiting…

38

Iraq shares its borders with six other countries including three other OPEC Member Countries – the Islamic Republic of Iran, Kuwait and Saudi Arabia - as well as Turkey, Syria and Jordan. It has a population of almost 37 million.

Iraqi oil reserves are considered the world’s fifth largest, with 143 billion barrels. Only a small fraction of its known resources are actually currently being exploited and it has vast proven reserves still untouched. Iraq is producing around 3.5 million bpd.

Iraq is a founder member of OPEC and is its second largest producer behind Saudi Arabia. However, many years of war, domestic political disputes, insufficient investments, and low oil prices has placed a strain on Iraq’s oil sector.

Since the 2003 U.S. invasion and the toppling of Saddam Hussein, Iraq has effectively been split into two rival states: the national authority in Baghdad and the Kurdistan Regional Government. How the revenues from Kurdish oil are spent has been an on-going major point of contention between them. Political disputes over how to best exploit the county’s oil resources are continuing to disrupt the rate of oil production. A significant proportion of these resources are actually located in Kurdish areas.

Low oil prices in recent years and rising imports have also been straining the Central Bank of Iraq and its oil revenues. So much so that investments towards increasing oil production are often insufficient.

Alongside the adverse impact of low oil prices, Iraq finances have also suffered from the need to finance security measures. The takeover of Mosul by Islamic State militants in June 2014 has fueled defence spending ever since. But in addition to the increased security costs, investment for oil is also being affected by the mass exodus of refugees and internally displaced peoples. This includes skilled oil workers critical to maintaining Iraqi oil export levels.

Iraq is one of the (few) countries reported to be currently failing to comply with the OPEC-led production cuts, but is apparently intending to catch up during the remaining months of the agreement.

A key issue regarding the future of Iraq’s oil production is what happens once the so-called IS is ousted from Iraq. The Kurds desire greater economic and political independence from Baghdad, but the Iraq central government desperately needs oil to rebuild the nation. Since Iraq is almost totally dependent on oil revenues to maintain its economy and state finances, any further substantial and prolonged weakness in oil prices will only further aggravate the situation.

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Supertankers filling at the Al Başrah Oil Terminal. The leftmost ship has just started filling; when full, the red portion of the hull will be below the waterline like the ship on the right.

39

Hey Manxx,

You know :58: “[I]you have to learn to be good oil trading to make much profits[/I]…” hahaha sorry, couldn’t resist.

Interesting move, will stop by once in a while and learn something totally new…just for the sake of knowledge of course.

40

Hi WinPsych!
Good to hear from you! :slight_smile:

Yep this is my “new suit” must be a boiler suit though! For me, I must have a passion for my underlying product, and I just suddenly realised that the Euro and the USD just no longer did it for me and I was just looking at lines and numbers. I was bored with just watching for Central Bank and NFP days, etc. Then I was just reading some news stuff that included the OPEC thingy and that was it - it took me right back to my schooldays when my destiny was intended to be either chemical engineering in refineries or marine engineering on tankers - instead I ended up in banking! :smiley:

So I am returning to the passion of my youth and soaking up the oil by trading it instead of working with it!

Please do stop by whenever…you’re always welcome! :slight_smile:

41

Instead of the anticipated 3 mill build in US oil inventories, the release brought a small draw instead, which resulted in a temporary rise in prices by 50c or so, but it was short-lived. The fact that the upwards reaction was so mild only serves to emphasise the underlying bearishness for prices (in my opinion! :wink: ).

Charts are still neutral short-term and even the 4H is flat now so I guess I am out of the market today unless something happens after the Fed details later…and even then I would only look to sell at the present.


42

I found this nice chart on Bloomberg. It shows well how oil prices rose rapidly follwing the OPEC agreement last November and then the drop in price last week after the unexpectedly large increase in US inventories.

It also shows today’s blip to the upside (so far) and puts it into perspective with the overall picture. Whilst there is still a strong increase in new oil rigs in the US shale areas and doubts over an extension of the OPEC production cuts agreement it is hard to visualise at present any significant increase in prices…but let’s see! :slight_smile:

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43

Well now, I guess, I come to the first tricky bit regarding interpreting what the charts are saying about price movements!

We saw a relatively mild rally in oil prices after the Fed rate increase as the dollar weakened but hardly what one could call a close correlation - as can be seen from this overlay - which again leaves an overiding negative feel about oil price:

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But the 4H chart is neutral and the 1H =>5m all now positive. And in addition we are back above the Daily 200 SMA and currently also above yesterday’s pivot line.

Technically, I should be looking for buys from the short term charts but whilst the Daily chart still looks so strongly down (see below) and without any contradictory news to support a change to a bullish stance, it is very difficult to buy anything! It still feels like the bottom could fall out of this at any moment… but, on the other hand, look at that candle formation that took us back to close above the 200 SMA…!

At this stage in my learning process this is too contradictory for me to risk taking a view at this moment (especially in view of my aim to “earn as you learn” :slight_smile: )…so today, instead of sitting on my hands, I am probably going out for a walk on the (frozen) lake in the spring sunshine instead - and wait for the market to tell me what comes next! Let’s see how it looks later… :smiley:

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44

Oh, and by the way, this was an interesting comment I picked up on Bloomberg!!!:

[I]"OPEC’s worst enemy isn’t U.S. shale drillers. It’s the hedges propping them up.

American oil explorers who survived the worst of the 2014-2016 market rout are shrugging off the 14 percent slide in prices this year from a high of $55.24 to less than $48 a barrel Tuesday. The price would have to drop to the $30s or lower to dent the bottom line of many drillers now working U.S. shale fields, said Katherine Richard, the CEO of Warwick Energy Investment Group, which own stakes in more than 5,000 oil and natural gas wells.

That’s because many producers have already locked in future returns with financial contracts that guarantee the price of their oil for most of the rest of the decade. Such resilience poses a dilemma for countries that agreed to an OPEC-led production cut aimed at tightening supplies to raise prices and relieve their distressed national economies.

“We’re in a boom again in Texas, despite what’s happening with prices lately,”*said Michael Webber, deputy director of the University of Texas’ Energy Institute in Austin. “The cowboy spirit is back. Hedging is playing a big role.”[/I]

…Locked in [I]future returns with financial contracts[/I] for the next three years??? But that is not just huge, that is surely Astronomical? Methinks, who is on the[I] other[/I] side of those contracts and how are [I]they [/I]hedged…sometimes the world of finance can be even more baffling than the search for the meaning of life itself! :slight_smile:

45

Venezuela is bordered by Brazil, Colombia and Guyana. It has a population of nearly 31 million.

The proven oil reserves in Venezuela are recognized as the largest in the world, totaling some 300 billion barrels, surpassing even those of Saudi Arabia.

Venezuela’s crude oil is very heavy by international standards, and as a result much of it must be processed by specialized domestic and international refineries. In addition to conventional oil, Venezuela has oil sands deposits similar in size to those of Canada. Venezuela’s Orinoco tar sands are buried too deep to be extracted by surface mining and the technology needed to recover such ultra-heavy crude oil may be very complex and expensive, and unless the price of crude rises some may remain undeveloped.

Venezuela has actually been an oil producer since 1914 and is another of the founder members of OPEC. Its oil revenues account for about 95 per cent of export earnings and the oil and gas sector accounts for approximately 25% of gross domestic product. As a result, the country has been very badly hit by both low prices and the drop in production.

Although Venezuela has enormous oil reserves, their development has also been seriously hampered by domestic political unrest. Misapplication of earlier oil profits has resulted in serious domestic problems. Earlier windfall profits were controlled by the government, which used that money to spend heavily on social programs and even borrowed billions more from overseas. However, this resulted in inadequate development of oil production and productivity as well as significant pollution problems - and when oil prices and production fell, it also left the country with a huge debt burden. Apparently, even the IMF has described Venezuela as the worst-managed economy in the world.

Problems still exist with high inflation, shortage of basic foods, goods and medicines, and a high crime rate.

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Oil drills in Maracaibo Lake in Venezuela’s oil-rich Zulia state.

46

Indeed - very much so. I actually (slightly) know someone who lives in Venezuela, and she says that everyday life there (including internet access, quite widely) is an absolute nightmare and a disaster, at the moment. :33:

47

It seems that the earlier caution regarding the dubious upside potential mentioned above was indeed relevant and merited (at least so far!)!

After a brief upmove there was a clear sell signal and the price has fallen since then and is now back below the daily pivot (which is more or less the same level as the daily 200 SMA, which is also flat at present). Happy to say I am in on this move :slight_smile:

This is the 15m chart with the sell signal from both the ribbon and the MACD:

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48

…and here was the exit from the above trade (5min chart signal) :). Now waiting for the next move:

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49

…and with all those resources! Unbelievable!

50

…Carrying on from the above trade. There was a further drop and I couldn’t resist another entry (below). But it was a quick in and out this time. I left the green pips showing this time just to “prove” I’m not just inventing these things! :smiley:

Naturally, with the CFD’s 5-pip spreads these are expensive if one takes many of these kinds of multiple short moves - and by comparison, for example, if I were trading just from the daily charts, I would still be short the same one trade that started from level 53.60 on 2.3. and, of course, would be very content!! - but not all daily signals last so long or move so far! I am still happier (and mentally more stable!) chasing these short chunks from the main move rather than holding long term positions in such a volatile commodity even though, at least on this occasion, I am earning less than I would have now in that daily position if I had taken it.

The problem with short term trading here is that one has to try to be anticipatory rather than simply following (or chasing) the price, otherwise you are usually in either after a big chunk of the move has suddenly happened or, even worse, at the end of it!

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51

I watched this dramatic film last night called “Deepwater Horizon”, about the true story events of the semi-submersible mobile offshore drilling unit called Deepwater Horizon that began on April 20, 2010.

The rig was built in 2001 to drill subsea wells for oil exploration and production. It was particularly notable for its advanced systems such as remote monitoring and information transmission from Houston, Texas, as well as in the rig’s operation and automation.


On that day, the rig was about to begin drilling off the southern coast of Louisiana. Soon after commencing operations a series of equipment malfunctions resulted in a massive blowout of seawater, drilling mud and methane gas. The gas component ignited into a series of explosions and then a firestorm. Finally, the mechanism for plugging the well was activated but failed…

There were 126 crew on board the rig and eleven workers were killed in the initial explosion. The rig was evacuated and the fire burned uncontrollably for a further 36 hours before the rig finally sank on 22 April 2010.

But the underwater oil spill continued until 15 July when it was finally closed by a cap. The Deepwater Horizon oil spill is considered the largest accidental marine oil spill in the history of the petroleum industry. In spite of massive operations to protect beaches, wetlands and estuaries from the spreading oil, extensive damage occured to marine and wildlife habitats and fishing and tourism industries. Even many years later various studies continue to reveal damage and deformities to marine life as a result of the oil spillage.

The results of numerous investigations into the causes of the explosion and record oil spill blamed defective cement on the well, cost-cutting decisions and an inadequate safety system,and systemic root causes.


According to Wikipedia, the ensuing legal proceedings resulted in 11 counts of manslaughter and a record-setting $4.525 billion in fines and other payments. In addition, apparently, as of February 2013, criminal and civil settlements and payments to a trust fund had amounted to $42.2 billion.

In September 2014, a U.S. District Court judge ruled that the oil company concerned was primarily responsible for the oil spill because of its gross negligence and reckless conduct and in July 2015, the company agreed to pay $18.7 billion in fines, the largest corporate settlement in U.S. history.

52

Charts continue mixed. Still not impressed with upside potential based on daily and 4H charts, but still waiting for 1H chart to confirm a sell signal before entering. Later today is the US oil rig count release which is sometimes provocative…

[I]“The Baker Hughes Rig Counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. The active rig count acts as a leading indicator of demand for products used in drilling, completing, producing and processing hydrocarbons. This particular case represents the number of rigs drilling exclusively for oil.”[/I]