Crude Oil and oil markets

Global Markets Commodities Oil and Gold
1

You know, sometimes things happen and all of a sudden you are faced with one of those “changes” in one’s life. There I was looking at the eurusd charts as usual - and has been “as usual” for a very long time - and I found myself not concentrating on them at all. Then the “thing” happened! The realisation was like a blow through the top of my head - “you are bored with this!”.

And that was it. I had to accept that I needed a change, something new and inspiring. Totally new.

And the end result was this. Starting to trade a commodity. Something that has a reality, a substance, a tangibility, something that one can study and learn about beyond just which way the price is going.

The oil industry had always fascinated me during my schooldays and suddenly the idea was born: Trade Crude Oil…but how? I know nothing about trading oil!

Hence this thread. I am a complete [B]Noob [/B]regarding oil. This is my learning journey into a new world. This thread has no specific purpose or structure beyond seeking enlightenment and experience in trading Crude. If anyone also shares an interest in this field then please feel free to join in!

But if you are [I]not [/I]specifically interested in oil then please do not post here. In particular, I am not looking for any of those one-line wonders so prevalent on this site advising me that:[I] " you have to learn to be good oil trading to make much profits but if not then losses will happen but otherwise it is good business and need a good broker" [/I]etc, etc, etc.

As I understand it, Crude is mainly traded either as futures or as CFD’s. Since I am only starting out on this journey, I am trading CFD’s. They permit smaller positions which allows greater flexibility on position sizing v. risk/reward.

Well there it is. I have changed all my charts and journals over to Crude Oil and three trades are on the books. But it is “slow as you go” with this and I really want to make it an “earn as you learn” experience.

[B][U]Technical notes:[/U][/B]
Sweet and sour crude
Heavy and light crude
Crude oil sector terminology
Tight Oil

[B][U]Country Profiles[/U][/B]
China
Iran
Iraq
Libya
Russia
Venezuela[B][U]Who is Who in oil[/U][/B]
International Energy Agency (IEA)
OPEC

2

I actually learnt my first big lesson yesterday:

In the same way that forex has its big monthly indicator - the NFP, so Crude Oil also has its own big indicator, only it occurs [I]weekly [/I]on wednesdays in the form of changes in oil inventories published by the US Energy Information Authority.

The latest weekly EIA data released yesterday put U.S. output at an unexpected 8.978 mbd, which is up more than 400,000 bpd from a few months ago. In addition, the EIA’s Drilling Productivity Report estimates that production from the major shale basins will rise in March by nearly 80,000 bpd, the largest increase in five months.

The resultant drop in price was impressive to say the least and gave a lovely opportunity to go short and see an instant profit. This morning also gave some excellent follow-through opportunities for quick shorts with a good probability of a profit.

This release is a must to watch every wednesday. But it is important to always check the calendar as it is sometimes released on thursday if there is a holiday during that week.

3

The trading approach that I am taking is to only day-trade. My trading principle is similar to my (previous) forex trading and very similar to the principles in the well-known Three Ducks system.

I establish the prevailing trade (or absence of) from 3-4 hour/Daily charts, then I use the 1hour chart to determine when price is moving in the trend direction, and then I use the 15m chart to identify my entries targets and stops.

I only use a couple of MA’s, some as ribbons, and I have reintroduced an MACD that I used to use many years ago with settings 50,60,4 to give a longer term signal. I add S and R lines mainly from daily and 4H charts and anything else that looks sensible.

Edited to add: I have two oil CFD’s on my platform, UKOil and USOil. The former being based on Brent Oil prices and the latter based on WTI prices. I am currently using UKOil but I do not know if there is really any difference here from a trading point of view. This needs looking into…

As a day trader, I need also to check when are the most active times to trade Crude Oil. I am so used to the forex busy times but this may be a very different thing with commodities and with a futures market alongside.
[U]
UKOil - Brent[/U]
Brent Crude is a sweet light crude oil. It is sourced from the North Sea and actually comprises four blends: Brent, Forties, Oseberg and Ekofisk crudes (known as the BFOE Quotation). It forms a benchmark price for oil purchases around the world.

[U]USOil - WTI[/U]
West Texas Intermediate is also known as Texas light sweet, and is also widely used as a benchmark in oil pricing.

4

Thanks for starting the thread! :cool:

Ooh, that means fundamentals, rather than just technicals … you were bored with “mostly technicals”? (You looked at both, for currencies too, perhaps?).

I’ve been trading oil futures “CL” a little, since early last year. It’s a very small proportion of my trades, but that small proportion is actually increasing. I’m gradually developing an interest in it because I’ve always liked men in oil … er, sorry, excuse me, I mean of course “because I’ve always liked something that can move quite strongly during the day and isn’t a currency”. :8:

Well, I’m as crude as the next man (depending on who the next man is), and will perhaps keep you company. I do seem to be trading oil a little more, and doubtless have much to learn, here.

Sounds good to me. I do the CL futures ($10 per tick per contract) because they’re CME and I pay an extortionate monthly fee for that data-feed anyway, and as the saying goes “I know no other”.

Ah yes … hence the saying - “Like oil off a duck’s back” (maybe not quite right?) … :8:

I’m doing something similar to you, but on a faster time-scale (actually using constant-volume bars, so the printing of my bars takes volume into account automatically). Like you, I only trade “with the higher time-frame trend” as a directional bias, taking entries from something faster (bar patterns, in my case).

I suspect that in spite of the fact that you use indicators and I don’t, we’re probably doing something similar? You’re trying to buy the dips in an uptrend and sell the rallies in a downtrend?

Yes indeed. This is one of things I [I]like[/I] about oil: 3.30 (UK time) on a Wednesday afternoon (usually) is the [B]only[/B] time you need to be “flat”, and even then not for long. The next [I][U]Thursday[/U][/I] release isn’t until June 1st, this year, I think.

Watching with interest - good luck!

(Edited to change “volatility” to “volume” so that not too many people laugh at me :8: ).

5

Great to see you here! :slight_smile:

Well yes and no! Certainly there is a whole wealth of fundamentals concerning oil from weather to war and everything in between! It is surely the most influential commodity affecting every economy. But I was also referring to oil itself and its exploration, transportation, refining, distribution, by-products, marketing, companies, and so on and so on! So much more physically interesting than a dollar bill - and that coming from a guy that collects banknotes as a hobby!

But for trading I am 100% technical with this. One thing I have already come to respect with oil is that when something occurs it moves, and it moves fast and far! It doesn’t mess around dithering about whether to go up or down or both. It appears to chart well. I suspect one reason might be that whereas forex is full of robots and millions of amateur traders, maybe Crude is more dominated by fewer but much larger customers from companies, countries and customers. The volumes are huge but I suspect much more from professionals in the business - but I may be totally wrong about that!

Yes, the product range deriving from the crude original is almost infinite. It is indeed hard to imagine how the world’s various parts could so harmoniously interlock with such unified intimacy without the lubricating characteristics of such refined fragrance as found in a canister of motor oil…

Please do! :slight_smile:

Well again, yes and no! Basically I am just doing the sheep bit and dumbly following it wherever it happens to go - and hoping that it always goes far enough before turning round to give me a profit. Although I do tend to often jump off the train while it is still moving - and often much too soon for my own good[I] wealth[/I]!

But one warning: I will be posting here a lot of very näive and basic stuff as I learn so don’t get too dismayed by it :slight_smile:

6

Current chart status:

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.

Oil 10032017.jpg700×488 41.7 KB

7

[U][B]Sweet and Sour Crude, anyone?[/B][/U]

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.

8

And always remember to roll over your futures contracts before expiry…


9

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:

10

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! :slight_smile:

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! :slight_smile: (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 …:slight_smile:

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…

11

[U][B]What is heavy and light oil?[/B][/U]

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.

12

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.

Oil EU spread 10032017.jpg700×696 32.6 KB

13

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! :slight_smile:

The 15m chart after NFP:

Oil 10032017 15m.png487×641 16.1 KB

14

Hi Manx,

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.

OPEC : Monthly Oil Market Report

Gives a sense of where the numbers are going, add that to the Trump factor, more pertinently the new head of the EPA and think ‘fracking’.

Trump administration tells EPA to cut climate page from website: sources | Reuters

Whether it’s fake news or not is irrelevant, it’s what the market is reading that counts.

15

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.

16

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…

17

Thanks for those links Peterma!..I love this bit:

"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…?

18

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.

19

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.


20

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.