Crude Oil and oil markets

[anon46773462]

So the oil markets did get another hammering today and lost nearly another dollar!

I guess one could (or maybe even should!) feel a little embarrassed about missing out on such moves, but I have to remind myself that when I changed over from forex to a physical commodity it was with the intention to trade primarily from the long side, buying value at low prices and selling at high prices - pretty much in the primeval traditional concept of a trader! It just felt that it would add a bit more meaning and tangibility to my trading. That still stands. But I must admit that I expected a bit more swinging up and down than we are seeing. This down move has been one way since the middle of April and is still going strong, as can be seen from the 4Hour chart, which is my core directional indicator:

But I have to remember that my expectation was that I would be taking far fewer trades and holding them longer, and in that respect I am very pleased that the charts have kept me out of buying anything during this down move whilst waiting for the value to appear. Obviously, I have taken some short term speculative trades on the short side but, for example, so far this month I have only taken two such trades… And I am beginning to sense withdrawal symptoms…!

But my aim is to be a commodity trader, buying low and holding for the high prices. And not buying in a falling market is precisely in line with that. It just makes trading (for me anyway) so much more real and meaningful after years of just following the ups and downs in numerical ratios between currencies - I just got bored with that…

The positive flipside of this downtrend is that I currently have much more time to read and learn about the oil industry itself, which is both satisfying in itself as well as useful in understanding the market I am trading (or at least, trying to! )

Certainly the upturn will come, but when and from what level remains to be seen…

[anon46773462]

Yesterday was a significant crash in crude oil prices, reaching their lowest levels since last November when the OPEC/NOPEC deal to cut production was announced. In other words, there has been no gain in price since those cuts began, which was their primary purpose. There has been a small drop in crude stocks globally but not enough to significantly reduce the excess levels back to a 5-year average as planned.

U.S. crude oil inventories have remained around record high levels due to the considerable and continuous growth in US shale production, bringing U.S. output up to over 9.2 mill barrels per day, which is apparently the highest since the summer 2015.

All eyes are watching whether OPEC will extend the production cuts agreement on May25 to the year-end - and it is generally accepted that they will. But the fact that prices have already failed to respond to these cuts so far, it raises the question how will an extension on the same terms succeed any better than the present cuts so far?

The globally high level of crude stocks is still well above the target levels which would bring balance back to the market and OPEC has to struggle against continuing growth in US production, higher output from other producers not included in the OPEC/NOPEC deal, and the struggle to maintain a high level of compliance with the terms of the agreement, and avoid cheating within the 23 countries comprising the OPEC/Non-OPEC group. This is particularly relevant since the first half of the year is a maintenance period with a naturally lower production rate anyway, but the second half of the year is usually a period of expanding production - and many producer countries are badly in need of revenues to meet their spending budgets.

Whilst demand is indeed the “other half of the story”, there is little sign of global economic growth exceeding current projections, and, in some instances, the opposite is the case.

I am thinking that I will have to consider seriously abandoning my aim of longer term trading and revert to the familiar short-term speculative, “Forget yesterday, ignore tomorrow, what’s on the menu today” approach. Maybe this is a case of shutting the stable door after the horse has bolted, but I am not happy about missing moves that are staring me in the face.

What I like about oil is that it moves distance when it moves. There is plenty of potential in day trades. But is also means looking into the spreads, which are higher for cfd’s…I have to think about a possible change of broker this weekend. I have one in mind…

[anon46773462]

Yes! Now I feel like I had my Snickers. Back to intraday stuff…

I have no idea why the market sank so low overnight and bounced right back - I didn’t find any new news. But anyway the price reached the top of the Hourly green band, still negative on the 4Hour and the 15m gave a sell signal. Bought it back a few minutes before the number just below 45…Oh but it feels good! Pips in the bin and a hot Friday afternoon

I can’t help pondering is it purely a question of rational analysis whether one trades long term or short term? Or is it just that some people are just born that way. I am so much more at home in a quick in/out environment…
Hourly:

[anon46398846]

@anon46773462

Yes! Now I feel like I had my Snickers. Back to intraday stuff…

I have no idea why the market sank so low overnight and bounced right back - I didn’t find any new news. But anyway the price reached the top of the Hourly green band, still negative on the 4Hour and the 15m gave a sell signal. Bought it back a few minutes before the number just below 45…Oh but it feels good! Pips in the bin and a hot Friday afternoon

I can’t help pondering is it purely a question of rational analysis whether one trades long term or short term? Or is it just that some people are just born that way. I am so much more at home in a quick in/out environment…
Hourly:

cause it touched a major resistance which has importamce since 2 years. no need for news in such cases. self fullfilling prophecy

[anon46773462]

Good observation!

Nice to see a bit of interest on the buying side going on here at present…or is it short covering! Either way, we have the BH US oil rig count in a while so will see if this bounce is sustainable into the weekend…

[anon46398846]

@anon46773462

Good observation!

Nice to see a bit of interest on the buying side going on here at present…or is it short covering! Either way, we have the BH US oil rig count in a while so will see if this bounce is sustainable into the weekend…

no observation. expected behaviour. planned action. patience.

[anon46773462]

Baker Hughes Us rig count showed yet another increase on the week but only by an additional 6 rigs to a current figure of 703. A muted reaction since pretty much as expected and coming immediately ahead of Janet Yellen’s speech in a few minutes…

[anon46773462]

As we start a new week, here is a quote worth pondering no matter what or how we trade:

“Ability is what you’re capable of doing. Motivation determines what you do. Attitude determines how well you do it.” Lou Holtz

May we always remember that our ability is the foundation of our professionalism and educating ourselves is a continuous process without end.

The more we learn, the greater our confidence and the stronger our motivation to trade diligently and intelligently.

Confidence based on a sound ability means we approach our trading with precisely the right attitude that leads to a successful outcome.

Happy trading!

[anon46773462]

I spent some time over the weekend rearranging and revising the way my chart content is configured and coloured, so it looks a little different - but it is the same principle as always .

Here are the 3 TFs 4H, 15, 5m. The 4H still indicates a negative underlying trend bias (in line with the daily, too). The 15m gave a good down signal early in the morning and the 5m has already provided two entry opportunities, as circled.

Now it’s wait and see what the NY opening gives us…

[anon46773462]

One of the key issues concerning the price of oil at present is the current agreement by the 13 OPEC countries and 11 other non-OPEC countries, including Russia, to cut their daily levels of production by up to 1.8 mill barrels per day. The objective of this agreement is to bring balance back into the market between supply and demand by reducing the current excessive global inventories, and thereby supporting oil prices at an acceptable level.

The first 6 month agreement terminates in June and there is little sign yet that the oil glut has reduced at all significantly. Therefore the same group of producers will be meeting as part of the 172nd OPEC meeting in Vienna on 25th May, to decide whether to extend the agreement, perhaps to the end of the year.

So who exactly is OPEC?

OPEC is the Organization of the Petroleum Exporting Countries. It was created in Baghdad in September 1960 by its five founder members: Saudi Arabia Iraq, Iran, Kuwait and Venezuela, and has its headquarters in Vienna, Austria.

OPEC’s mission, according to its Statute, is to “coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”

Nine other countries later joined OPEC: Qatar (1961); Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973); Angola (2007); and Gabon (1975). Indonesia joined in1962 but suspended its membership in January 2009, reactivated it in January 2016, again suspended it November 2016.

Whilst OPEC is generally regarded as a cartel, its aim has always been for its members to work together according to its common recommendations and guidelines but in the past these have often been ignored by some member countries in preference for their own national objectives. Currently OPEC is working in a much more unified manner, where compliance with the current agreement for production cuts is approaching 100%.

As of 2015, the 13 current member countries collectively accounted for about 73 percent of the world’s “proven” oil reserves as well as 42 percent of actual global oil production. But at the time of OPEC’s creation, the international oil market had already been dominated by what was known as the “Seven Sisters” multinational oil companies since the mid-1940s. These seven companies continued to dominate the global markets until the mid-1970s, at which time the “Seven Sisters” controlled around 85 percent of the world’s petroleum reserves. These companies were:

Anglo-Iranian Oil Company (now BP)

Gulf Oil (later part of Chevron)

Royal Dutch Shell

Standard Oil Company of California (SoCal, now Chevron)

Standard Oil Company of New Jersey (Esso, later Exxon)

Standard Oil Company of New York (Socony, later Mobil, now part of ExxonMobil)

Texaco (later merged into Chevron)

Since that time, dominance in the oil industry has shifted to OPEC and the large, state-owned oil and gas companies, such as Saudi Aramco, Gazprom (Russia), China National Petroleum Corporation, National Iranian Oil Company, PDVSA (Venezuela), Petrobras (Brazil), and Petronas (Malaysia).

Now that the US is starting to re-emerge as a major producer of oil, alongside other non-OPEC producers like Russia, it is to be seen how this will affect OPEC’s ability to influence supply and pricing in the international market in the future.

Economist.com

[anon46773462]

Once again the BP bugs strike!

I just finished writing a post about yesterday’s price action as we approach the forthcoming OPEC meeting and when I press the “Post reply” button - poof, it all just disappeared - again! I don’t know if this is my PC problem or what, but it happens regularly…

This happens to me so often that normally I write my posts in MSWord and then post it here, but didn’t bother today - and of course the bug got me.

I can’t write that all again, but briefly, we seem to be trading comments and speeches and predictions for the forthcoming OPEC meeting on May25. Russia has indicated that it will support extending the agreement and Saudi Arabia has hinted that it may well go even beyond the year-end. China has also suggested that it will maintain its oil purchasing and place it into its strategic reserves.

The Daily and 4H charts are still in negative territory but looking more neutral:

Daily:

4Hour:

[anon46773462]

We have spent 2 days now traversing the same narrowish range (at least for oil). It has been a good time for short term chart trades but no progress for longer term positions.

I haven’t seen any new concrete factors today. More talk and speculation about the OPEC meeting, blah blah…

But one argument did get my grey cells into a twist: Apparently, many hedge funds and money managers built long positions at the time of the OPEC agreement back in December - OK, I understand that. Then over the last couple of weeks, and especially last week Thursday, they modified their longer term view and began closing out a large part of these positions and took a considerable loss - OK, I understand that, too. But then I get a bit lost because the argument continues that now that these long positions no longer exist they are apparently no longer holding the market back and price is able to go higher…errr, hang on… so, because all these fund managers were buying the market and holding their positions, the price could not go up? but now that they are closing these positions the market can rally…errr what??? Well yes, that is what the man said:

"for the week ending on May 2, hedge funds slashed their bullish bets on oil futures yet again, taking their overall net-long positioning to its lowest level since the OPEC deal was announced in November 2016…If a lot of bullishness has already been squeezed out, there is less built up pressure to push prices down further. Put another way, there is a lot more room now on the upside since everyone got out of their bullish bets. We are moving toward a positioning where these money managers are no longer over-invested,… This opens up the potential for them to start buying again.”

Sigh, there was a time when life used to be so simple…

Hourly chart for last two days, going nowhere in particular (but the overall bias is still negative):

[anon46773462]

Nothing much to add this morning. Barring any unexpected events, it seems we are becoming progressively more neutral until the the terms of the renewal of the OPEC/Non-OPEC are settled - although rumours and opinions on it will no doubt throw the price around from day to day. However, we do have the EIA Crude oil stocks release later, which is currently a key issue, and any strong divergence from expectations (which seems to be more the rule than the exception in oil!) will no doubt produce a strong reaction.

The key “problem” is not just whether there is an extension or not, nor what the terms of the extension are, but whether the extension will have any impact on prices anyway! As long as it remains feasible that the US and other non-agreement countries can increase production to partially counter the reductions by the OPEC/NOPEC group, then the effect of any extension is diluted, the global inventories glut remains, and OPEC market share is reduced and taken up by the non-agreement countries.

In the meantime, estimates of future global demand have been weakening due to lower economic growth estimates and increased impact of renewable energy sources, which raises a cloud over the extent of possible price increases anyway.

But the bulls will retaliate with claims that current investment in new conventional production resources are too low to guarantee sufficient supplies in the longer term and that shale production is too small and too short term to meet future demands on its own. In addition, the oil companies also want good profits and will quickly turn off production if prices drop too low. The current estimates are that breakeven costs for US shale oil are, on average, around $30 per barrel (which is considerably lower than for many producers globally) - and then we need a healthy profit on top of that.

There has been a noticeable tendency for active buying to appear whenever price has dropped much below where we are now, as we saw last Thursday. Are we perhaps finding value around these levels, afterall? Maybe, but while the longer term charts are still negative to neutral it is maybe a bit premature to actually trade on that assumption! I am very much in a stalled, neutral, consolidation mentality and a few day trades are enough to keep me happy right now - at least until the EIA release later today…

So all in all, there are sufficient arguments on either side to guarantee plenty of action in Crude trading.

If we take a longer period look at the 4-Hour chart we can see the move that started around mid April and how it is now stalling. But the best one can say is that it is now neutral and best to trade short term intraday and wait for signals for the start of the next major move - which could be either way from here!

[anon46773462]

Seems we just had a huge draw in inventories according to the EIA report ( -5.247 mill versus expected -1.786 mill). Consequently, a sharp spike upwards. Now to see if this holds and gives added credibility to whether the OPEC cuts are in fact actually starting to work through the “system” - or will it drop back due to continuing skepticism!..

4 Hour looks like this right now and still rising:

[anon46773462]

The response to the significant draw in crude stocks yesterday was significant in that it took price back above the 4 hour green band for the first time since mid April - the start of the current down move. But has it done enough? is it sustainable? is it the start of a new up-trend?

It is a little disturbing that the price has not since taken out the high achieved immediately following the EIA release, but, on the other hand, it has not fallen back either!

The general commentary I have seen all seem to contain a lot of bearish “ah but’s”, i.e.

ah but: US production is still increasing and further investment in additional production is faster than anywhere else in the world.

ah but: any extension of the OPEC cuts will be countered by increased production from both US and other non-agreement countries like Iran and Nigeria, who will grab market share from the likes of Saudi Arabia

ah but: global demand is falling below expectations due to poorer economic growth in OECD, India and China

ah but: US production is based on greater productivity efficiency than elsewhere and is expanding rapidly regardless of price

ah but: the US producers have locked in considerable amounts of future profits via hedging and will carry on increasing production even if prices fall further.

So the move is significant…but where is all the bullish talk?

Perhaps I should add here that at least Goldman Sachs and the Paris-based IEA are supporting the bullish view, claiming that US stocks do not give the whole picture and that globally stocks are reducing more significantly. Goldman points out that storage costs in the US are comparatively very low and are therefore the last to draw down and are a lagging indicator in the rebalancing process. Goldman also claims the sell off is more due to technical reasons than poor fundamentals.

One other positive comment points to the simultaneous draw in gasoline, which shows the crude draw is not just a swap of oil from one storage to another.

The 4 hour looks like this:

From a short-term trading perspective, yestday was a great day. Already some hours before the release the market had moved firmly positive on the 1H/15M combo chart (based on previous API release, probably) and gave plenty of opportunity to take a long position with a close stop. There was one scary spike down a few hours before the number but not enough to reach the stoploss level…and then the release paid out.

[anon46773462]

We did manage to hold the gains after the EIA release, and even put in some new highs, but nothing overly dramatic nor has the price action been at all enthusiastic or convincing, considering the size of the drawdowns in both crude and gasoline. My attitude to trading this today has been equally reluctant…

The 1 Hour chart shows the erratic movements all day (inside the blue box). I am still not convinced about the upside potential here…

[anon46773462]

Interesting situation right now. The charts are undoubtedly now positive, but the price action is really lacklustre.

Everyone knows that OPEC will, with 99.99% certainty, extend the current production cuts in 2 weeks, it only remains to find out a) for how long, b) by how much, and c) will it actually make any difference…

Everyone also knows that US shale production is constantly increasing and the rig count is higher every week…

The “proof” of the swing to positive in the charts also manifested in the “close and reverse” of the High 5 trade which was stopped out and reversed yesterday at 47.73. This produced its third consecutive win of +455 pips from its entry at 52.275 on 18.4. (previous High 5 trades: +408 and +383 pips). So the current High 5 is a buy at 47.73 (with a scaringly distant stop currently at the recent daily low of 43.73 from 5.5.).

The 4H chart is positive and we have held well the gains after the EIA crude stock figures on Weds - and we are currently trading above the daily pivot at 47.76.

But the price action suggests that the general interest here is, well, what can I say, but…look at the 5min chart for the last 14 hours:

But NY will surely wake us up a bit…and then there is the BH US rig count…

[anon46773462]

Here we are nearly some 5 hours later, and after some US economic releases incl. retail sales and CPI. Whereas the WTI crude bid was 47.92 earlier, it is now, 5 hours later, 47.90 - yep, a whole 2 pips difference

We have seen a little jiggling down and up again, but nothing tradeable really. The Baker Hughes US rig count is due in about another 4.5 hours, at GMT 17.00 (BST 18.00). Last week’s level was 703.

…Whilst writing this the bid has indeed “rallied” back to 47.92

My logic here is that by writing how dull and static the price is today, it will definitely start an outrageously, definitively sharp move as soon as I press the “Quick Reply” button…hmmmmm!

[anon46773462]

Didn’t happen! Haha!

But did manage a pathetic handful of pips of the little break downwards. I don’t know what caused it specifically but it was an opportunity and about the only one around today…so far!

The US oil rig count was, as expected, again higher from 703 to 712. In my opinion that doesn’t really change anything as it is well in line with the current trend and thoroughly built into the present pricings.

The charts are not looking any different but maybe a little more “soggy” than before, which only goes to weaken even further any conviction that we are going higher. I may consider going short if we finish weak tonight, but there again it is the weekend. Depends I guess on how weak! Right now it looks like we will end up looking very neutral - as indeed maybe it should with nothing new in the arena…Have a great weekend!

[anon88459104]

Do you ever find Fridays are pathetic, at least that’s my point of view regarding FX movements.

I rarely trade on a Friday, and in most instances Mondays too - but then again a three day week cant be complained about…

I have a significant correlation between the day of the week and averaged returns and yield of trades taken for these two days, it’s not rosy