Crude Oil and oil markets

[anon46773462]

Maybe the first thing that comes to mind when we think of crude oil is gasoline and engine oil. But crude oil provides an amazing range of products, many of which we use every day without even thinking of their origin. For example, shampoos and lotions, food preservatives, fertilizers, plastics and packaging.

Each barrel of crude oil produces about:

• 20 gallons of gasoline
• 12 gallons of distillate fuel oil (diesel fuel and heating oil)
• 4 gallons of jet fuel

From the residue, the refineries also produce over a dozen other petroleum products such as gas, asphalt, lubricants, as well as various components used by the petrochemical industry to make a wide variety of chemicals and plastics, which appear in a huge range of end-products.

Here is a partial list of products containing by-products from petroleum refining, found on one website:

[anon88459104]

This brings back the old chemistry lessons at school around fractional distillation

[anon46773462]

This brings back the old chemistry lessons at school around fractional distillation

Yes, me too!
I guess oil is just about the most versatile raw material on earth. I often wonder what the history books will write about the era of hydrocarbons, which will probably be no more than about 300 years of our entire history - but what an impact!

[anon46773462]

I just read that China is theatening to suspend supplies of crude oil to North Korea if they go ahead with a sixth nuclear test.

Apparently, China supplies North Korea with 90% of its oil requirements and such a move would paralyze the entire country in a very short time.

A very disturbing build-up of tensions going on in that region…

[anon46773462]

…and yet still, I read in another article that China is now the No.1 [I]buyer [/I]of US crude…??

In February, China overtook Canada as the top destination of US crude exports.

So China [I]buys [/I]crude from the US…and North Korea [I]buys [/I]crude from China?

And in the meantime, the US sends the USS Carl Vinson+entourage to the Korean peninsular…

To be sure, this is a strange world!

[anon46773462]

Crude Oil markets are open today after the Easter weekend, but unless something unexpected is released or occurs (as is certainly always possible in today’s rather intensive environment), then I guess it will be a thin and quiet one.

To summarise where we are at present:

Bullish:

OPEC/NOPEC is still maintaining a super high level of compliance with the agreed production cuts - and strong optimism that the programme will be extended to the year-end at the next OPEC meeting on May 25th. Also currently exempted countries, Libya and Nigeria, may also then be brought into the deal.

The weekly release from the EIA has started to show signs of inventory declines as refiners step up the pace as we head into the traditional summer driving season after their maintenance periods. If this is combined with a significant general increase in demand as the US economy improves then the rate of decline in inventories could start to speed up. (stocks elsewhere globally already declining)

The geopolitical picture is very intense at present with commentators looking at the Syrian situation and the US/China/North Korea developments as well as the low ebb in US/Russian Federation relations.

Bearish:

Recent downgrades in projected global oil demand growth, including the IEA, who dropped their own overall estimate for this year to 1.3 million barrels per day. It cited in particular demand slowdowns in India, Russia, the U.S., Korea and the Middle East.

Huge crude global stockpiles are still putting the brakes on oil price gains. For example, the OECD storage levels at 330 million barrels are still above the five-year average, which is a key metric that OPEC has been highlighting in its arguments for production cuts.

Neutral:

One interesting point of view is that any upward movement of prices resulting from the OPEC cuts in production would only encourage a higher production rate from the US shale regions and other non-OPEC countries, which would neutralise the impact of the cuts and place a corresponding downward pressure on prices.

Neil Atkinson, the IEA’s head of oil industry and markets, and editor of the agency’s monthly report, says:
“We’re seeing demand growing fairly steadily in the oil market and we think that the balance is coming together slowly but surely and the numbers are there to support it. We think that as the year progresses that rebalancing will become more and more apparent in the drawdown of actual physical stocks,”

Daily chart:

A pull-back from the resistance band (blue) starting around 53.75 and formed from the highs reached following the start of OPEC’s cuts. Now supported by that (red) band between 52.50 and 52.30.

The 5-Day low has now jumped to 51.47 (from 7.4.). Position started at 48.45 on 29.3.

4 Hour chart

Still in the pull-back from the resistance region - waiting for close back above the pipeline ribbon

1 Hour chart still in pull-back - possibly to the support band at 52.50 to 52.30. Looking for a bounce off that confirmed by a close through the yellow/green bands and a upward cross in the pipeline ribbon.

I am only looking to buy at present, mainly due to the geopolitical risks around. But also waiting for a good signal before entering and not anticipating or pre-empting the bottom here.

The arguments surrounding the changing supply and demand picture do not give me any clear view one way or the other, but on balance, I still go with the reducing stocks and continuing production cuts putting upward pressures on prices.

[anon46773462]

A quiet range so far today, as expected. We had one spike up which I believe was due to comments from the Saudi Arabian energy minister assuring that OPEC will do what is needed to bring balance to the global supply/demand equation. But it was short-lived and the market has settled back towards its lows for the day, at least for now…

This spike can be seen on the 15min chart (which is very useful on quiet, directionless days). I didn’t trade it as I am not sitting in front of a PC all day in this kind of quiet trading just in case something might turn up (or down!), but it shows how a break through to the upside would have still scraped a small gain even though the move was not sustained.

I did have a buy order all day at 52.50 which was not hit. I have now cancelled it as a hit at that level late in the trading day could easily lead to further falls. Better to return to it in the morning…

[anon46773462]

No great surprises overnight (probably due to all eyes globally awaiting with great excitement to see the new BP forum menu! . The new menu layout looks good to me - even if the commodities section is about as far down the list as any deepwater oil reserves - but I guess that is about where a minor, non-forex, topic belongs on a forex site! )

The Daily chart is still looking bullish, and we have touched the top of that support band at (about) 52.50 to 52-35. This is now at a very interesting point because this band has been significant since the price rise following the OPEC cuts that began in December and any downside breaks have quickly reversed back above this level. Prices above $50 reflect OPEC’s target level, but once achieved also starts to focus on increasing supplies from US shale and the ongoing increasing oil rig count there. Kind of a floor and cap scenario here whenever we are advancing above the $50 levels.

THis support band is also interesting because the 5-Day trade has now caught up with the market and the 5-Day low stop level is now at 52.275 - just below this support band! If we break the band then this stop will almost definitely be triggered and will realise a profit of 383 pips! - but we are not there yet, and there is still the option of a bounce off this 52.50 level to even higher levels…

We have the API weekly Crude Oil stock data later today and, of course, the ever-present geopolitical risk factor.

The 4-Hour chart has lost its bullish position with the yellow band extending below the green band (for the first time since end of March). However, I see this only as a sign of a pause as the charts “catch up” with the current price. The 4H pipeline ribbon is flat and neutral and I would like to now see a crossover of this 4H ribbon before reverting to the 1-Hour chart for a trade entry ( I am still only looking for buying opportunities).

These periods of price consolidation are notoriously the most susceptible to fake breakouts on the shorter TF’s (e.g. 1-hour and 15min). In my opinion, this is the time when one should either drop to ultra-short TFs like 5m and below and take quick trades for a few pips each or learn to sit on one’s hands and wait…and wait…and wait… for the longer TFs like 4H to signal a new significant move starting out of the consolidation/pause phase. In the case of crude oil CFD’s the former scalping type trades are not really an option (in my view) due to the 5-pip spreads.

[anon46773462]

Quick update on the above:

After a prolonged dithering just above the support band (see hourly chart below), we finally, and quickly, broke through it and, as anticipated, hit our 5-Day low exit at 52.275 for a gain of 383 pips.

I am not sure of the reason for the down move, could it be, at least partly, due to the front futures contract expiry and roll-overs? It is hard to estimate the impact of this and/or the Easter break on prices right now, but I take this as an excellent example how one must trust one’s charts! The 4H has been saying for several days that we have stopped advancing and the potential is for better buying opportunities if one can only be patient and wait! So I have waited - and am still waiting! which means I am no richer than before, but certainly no poorer either!

I don’t see any significant support under this level until (and if) we reach the lower regions of previous breaks of this price band, i.e. around 51.30 to 50.80. But on previous breaks below that support region we have seen a quick and strong bounce back above it within a few days.

Right now I am keeping an eye on the 1H chart to see if NY continues the slide or will we see some post-break fresh buying appearing. I am beginning to feel itchy fingers, having not traded for a few days since closing out my long position - but patience, patience…or am I simply missing out on a good sell opportunity here? But with oil, I do tend to think it best just to always buy and, if its wrong, then just wait for it to eventually come right again!!! But it is not as simple as that! (BTW current CFD’s expire tomorrow 19.4. for USOil)

Updated Daily chart

I Hour chart

[anon46773462]

Another quick update!

Well we did not stay below that band of 52.50-52.35 for very long! We had a close on the 1 Hour back above the band but it stalled badly at the Daily pivot - at least for now.

I took a quick buy in/out just to kill the withdrawal symptoms of a few days without a trade and now, duly satiated, I’ll wait for the 4H and maybe even the daily to confirm the upside potential.

I really don’t know why this region is so seemingly relevant, but, if it works…

[anon46773462]

We’ve been up and down through this narrow band of 52.50 to 52.35 all day on the short term charts but the Daily chart is still trading above it and thereby still holding on to the bullish scenario.

But we have the API crude oil stocks in about 20 mins and if that reflects a build in stock levels as the US shale production continues to increase then it may force a close back down through this range.

However, prices still seem to be holding firm in spite of US oil production increases and several US banks, as well as OPEC, are looking at $60+ per barrel later in the year. Any long term investor would probably still be buying into any weakness.

[anon88459104]

I actually hope more people here see the value within this thread - I’ve never ever looked into Oil.

But, from looking at these charts, and more importantly the analysis behind them it starts to ask the question “is there actually a world outside of FX” (even though what works should not ‘[I]apparently[/I]’ be changed)

Even though I don’t comment, perhaps because I feel I don’t know enough Manxx, I still read each of your posts.

Keep it up.

[anon46773462]

Thanks Jezzode for the encouragement! I will respond more tomorrow to your post!

I just wanted to add here a pic after the API number that shows we did actually break down below that range (again!). But I have put the 4H chart instead this time just to show how on some days price can fly around everywhere and not actually go anywhere at all! Look at those spidery wicks and the tiny candle bodies in the red circle - and all in one day! I think this really shows the importance of watching multiple TFs in order to get a true picture and learn to choose which timeframe best suits the kind of price action evolving during the trading sessions.

More tomorrow!

[av0224]

Very valuable insights and good starting point for the beginners.

Please keep up the good work.

[anon46773462]

Very valuable insights and good starting point for the beginners.

Please keep up the good work.

Thanks, av0224, that is good to hear

[anon46773462]

Crude oil prices sold off late yesterday in response to the American Petroleum Institute (API) weekly oil stocks report. Although the API reported an inventories draw of 840,000 barrels, this was less than industry analysts’ expectations. I.e. not so much a bearish figure, rather just a bullish dampener!

In addition, the API reported an unexpected build in gasoline inventories of 1.374 million barrels instead of an anticipated draw for fuel.

Additional pressure on prices arose from further data indicating continuing increases in US oil production in the coming months (which is seen as neutralising the impact from the production cuts implemented by OPEC). This time the data came from the EIA’s Drilling Productivity Report.

Sometimes, what is most interesting or significant concerning price reaction to data releases, is what does not happen rather than what does happen! In my opinion, there were sufficient negative pressure sources yesterday to have really pushed prices down if the overall sentiment was negative, but the reaction is actually surprisingly muted. This suggests to me that there is still a longer term expectation of higher prices and that there is little interest in setting up short positions. For example, an oil producer (like many other businesses) will typically lock in certain price levels with short hedges in order to guarantee their future income by reducing the risk from exposure to price falls before the oil is actually sold. There are still many arguments for a $60+ barrel price later in the year.

Another reason for the muted downside response might be because there has been significant divergence between the weekly crude oil stocks data released by the API on Tuesdays, and the weekly inventories data released by the EIA on Wednesdays. So maybe the markets are on hold, waiting for further confirmation of the current state of crude inventories and gasoline builds from the EIA later today at 10:30am EST. If these also reflect sluggish draws on crude stocks and significant gains in the refined oil products then I guess we will see more weakness in prices.

Here’s an update on the daily chart - we are still struggling with this “magic” band around 52.50 to 52.35:

But I can’t help pondering who is actually really interested in seeing lower prices! Certainly the oil producing nations are not, especially those whose government budgets depend significantly on oil revenues such as the OPEC countries. But surely neither are the oil companies who are producing and refining the oil. For example, the companies in the US shale oil regions have succeeded in reducing their breakeven thresholds via technological improvements, which has driven the current boom production level such as in the Permian basin. But surely they are looking for a healthy pay-back both for themselves and for their investors and are certainly not excited by the prospect of selling their oil at a mere pittance over their beakeven levels?

OK, maybe the non-oil based economies are keen to see cheap energy levels because that releases and diverts individual incomes towards other products and investments and promotes overall economic growth. But there are also limitations to the benefits even there, such as a reluctance to develop alternative energy sources, less incentive towards low-emission transport, reduced govt tax revenues, etc.

Maybe there is an optimum range for oil prices that is acceptable for all interested parties. And although the overall supply/demand ratio is the key factor affecting prices, we could see a balancing mechanism whereby:

under-supply/stronger demand => higher prices => more oil production activated => lower prices

over-supply/weaker demand => lower prices => shutdown in production wells => higher prices

…But as we now focus on the possible shift of the oil glut from basic crude into refined gasoline, it is interesting to look back to an opposite situation not so many years ago…

[anon46773462]

Just want to add the current 1Hour chart showing the price action from yesterday morning to this morning. You can see yesterday’s short-term opposing reactions and confusion between bulls and bears quite clearly, especially compared with the rather nondescript daily candle on the daily chart in the above post. Another example of the need to keep an eye on the long-term charts - it is so easy to lose sight of the overall picture if one only remains submerged in the rotations of the 15m-1m charts. - If you want to look at trees, then walk in the woods. But if you sometimes want to also see the forest, then sometimes take a helicopter…

Key observations: The near-term yellow band is still under the longer term green band and we are trading under yesterday’s daily pivot (blue dashed) and at the bottom edge of that horizontal band. This suggests that the market is still more vulnerable to bearish inputs and I am not buying until I see an hourly close through the green band and above the pivot - and only then if the 4H is looking sympathetic to an upmove.

The situation is a bit complicated today because of the fact that current CFD’s expire tonight and any open positions will be automatically closed after the normal day’s close, so positions cannot be kept open overnight even if one is taking a longer term view. So we are limited today to a day-trade scenario, but that is shadowed by, and until, the upcoming EIA release later…

[anon46773462]

@Jezzode

I actually hope more people here see the value within this thread - I’ve never ever looked into Oil.
But, from looking at these charts, and more importantly the analysis behind them it starts to ask the question “is there actually a world outside of FX” (even though what works should not ‘apparently’ be changed)
Even though I don’t comment, perhaps because I feel I don’t know enough Manxx, I still read each of your posts.
Keep it up.

@av0224

Very valuable insights and good starting point for the beginners.
Please keep up the good work.

Thank you both for the reassurance!

Maybe, if there are readers here, then this would be a good point to revisit what are my intentions here with this thread!

Crude Oil is a new trading market for me. Although I have traded interest rates and currencies for many years, I have never seriously traded a concrete, tangible, commodity before. Much of the trading environment is the same, but much is also very different. A physical commodity also has an entire industry around it which also adds a huge dimension of simple plain interest in addition to the direct fundamentals and price action.

So I started this thread as a "Newbie"s venture into a new world of commodity trading, where anyone who is interested can explore the nature of the commodity, and its industry, and its various participants, in addition to trading the market itself.

I am trying to form a personal commentary and opinion as I learn about, and explore, the various forces at work in this market, but also using technical analysis to confirm or reject my views, and to provide reference points for timing and appropriate levels for trade entries and exits. I am therefore posting charts purely to illustrate my thoughts and current price activity. I am not looking to promote a specific trading method here. Although, of course, technicals is another relevant area open to discussions!

I am not focusing on any particular timeframe for trading and am using a Daily, 4H, 1H and sometimes a 15m analysis. My trades tend to be intraday/overnight at present simply because of my historic trading style, but I am looking to stretch my horizons to include longer term positions as well depending on the market view.

I keep a strict money management control over trading but I do not maintain any kind of targets objectives. I believe the market can only give what its price movements can offer. My concern therefore is only to read the movements and the underlying market/industry factors and to make disciplined trades accordingly, and to thereby make a profit on my trades according to, and limited by, what the market will offer. In this way, the cumulative size of those profits is a reflection of quality of the overall market movement at the time rather than a pursuance of a fixed percentage gain regardless of market conditions. I don’t ever want to feel pressurised into finding a trade even when there isn’t a sensible one to be found just to reach some pre-defined target percentage that has no bearing on the market’s ever-changing characteristics. The market is the boss, not me.

So my objective is both personal development and also to provide some background knowledge, stimulation and interest to anyone else who may be keen to try this market. And in that sense, as a Newbie myself here, any sharing of views, information, trading experience, etc is truly welcome!

[av0224]

Yes, you are newbie having so much knowledge on the price movement. Does not matter it is Forex or commodity .

[MikeWolski]

Manxx…
I just want to let you know that I am enjoying this thread so much. And you.
For calling yourself a newbie, man, you are intelligent. What good write ups you have!
It kind of doesn’t seem fair that you’re doing all the leg work, which probably requires some hours, and then all we have to do is read this and then digest it.
Well, I just wanted to tell you that this stuff is very, very interesting.
You just might bring me into it.

GOOD JOB MANXX!!!

Mike