Crude Oil and oil markets

Global Markets Commodities Oil and Gold
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Hiya! Thanks for stopping by! :slight_smile:

Yes, I totally agree, I also used to recommend traders to ignore Mons and Fris. as I usually did myself. But I am in a transient stage at the moment. I had only ever traded currencies for many years, but I have now swapped over to crude and I am only in my 3rd month so far. So I am trying and testing and evaluating everything from scratch. Mons are clearly a non-event but I am not yet sure about Fridays, especially with the Baker-Hughes release on Fris which is, or at least has been, traditionally very relevent.

I would even go so far as to suggest that the mornings [I]generally [/I]are not very active and it is worth just turning up for the NY session.

But not only have I swapped from forex to commodities, well oil anyway, but I am also trying to extend my trade lengths from intraday to several days or more - which is why I am also tracking Turbo’s High-5 method here (on paper so far). It has gone well so far, but when backtesting it during the latter parts of last year it didn’t do so good in Crude Oil! So I am trying to combine the best of my own methods with the High-5 principles.

But I suspect you are right and Fridays [I]are [/I]probably a waste of time here as well…

Have you ever tried any commodities?

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And how do you find the transition from FX to Brent from a PA point of view. I’ve often tried to simply overlay my FX trading system onto Brent, Nat.Gas & WTI; admittedly with little success [on demo]. The parameters certainly would require some quantified adjusting, which I just dont have the time do at the moment. Ironically though, my FX system is ‘self-adjusting’ from a volatility point of view.

Unfortunately, the key driver of my FX system is using round number levels as areas of interest - if a certain commodity doesn’t follow this routine then it’s back to the drawing board when considering anything else other than FX.

I have no reason to move away from FX at this point in time, but in the medium term future I would like to open up to opportunities within commodities and perhaps indices.

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So far, the transition has worked out better than I expected. I am trading cfd’s on WTI rather than Brent. I chose WTI over Brent only because there is only a 1-hour break each evening whereas with Brent there is a 3-hour daily break. But I have been wondering whether Brent would afterall be better since it is a more widely used global standard than WTI and therefore levels like $50 are more relevant from a PA point of view.

To be honest, I don’t really have a “system” as such. I treat my charts as the “tools of my trade” and use them as guides rather than rules. They keep me disciplined but not incarcerated. Therefore they tend to fit anywhere, it is my interpretation that needs adapting to different circumstances.

I think I am in a minority of one on BP since I just use a few MA’s and their crossovers and don’t really get on with PA at all in terms of S & R levels and patterns, etc. I tend to mess around a bit with my MA’s but my core trading method has been the same for years, ever since I started drawing my own daily charts by hand in my banking days! My main interest is in using multiple timeframes, though, and I jump from daily/4H to 1H/15m/5m etc depending on how I see the current overall movement potential - as you saw last Friday, that was definitely a 15m/5m day! :slight_smile:

But I do feel that Crude Oil does tend to “honour” technicals. I have seen some S & R lines respected and the widely watched 200SMA does seem to carry some influence. But I think there are some very different fundamentals and practices in Oil that I have not seen before in forex. A lot of this is due to the size of interest from the industry itself. For example, after OPEC started its production cuts last December the price rose sharply but then fizzled out. It was not that the market changed from bullish to bearish but simply that the US producers, who have a B/E of $20-$40 per barrel started to lock in their profits for 2017 and 2018 and even apparently partly for 2019, too! This apparently is why the US producers can carry on massively increasing their production towards record levels regardless of where the prices go. Naturally, there is also the huge money management and hedge funds that are more speculative!

I just like the fact that there is a concrete product and an entire, specific industry underlying my trading. It adds an entirely different dimension to trading and price movement. And the oil industry just happens to fascinate me. Its production, shipping, refining, companies, countries, environmental issues and general impact on global economics - it is never-ending! :slight_smile:

But it is scary, too! Oil sometimes seems strangely slow to react to fresh input compared with forex, but when it does move it is fast and far! Having spent the bigger part of my entire working career in risk analysis and control in banking and industry, I am more at home identifying and limiting risk rather than seeking it out - which is not maybe the best quality for a trader! :smiley: So, although I would like to extend my trading horizons to days and even weeks, I am not ready for that yet! But on the other hand, the short term trading is quite ridiculous with 5-pip spreads on cfd’s! I should, and probably will, swap to futures once I feel ready to continue long term with Oil, but that will mean changing brokers and I don’t want to do that until I am convinced about this change.

That’s why this thread is just kind of me thinking out loud and not necessarily very reliable for anyone else! :slight_smile: But it is great to chat with others like yourself sometimes too! So thanks again for your time and interest and you input is welcome any time!

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Short-term trading still seems the best way as we approach the OPEC meeting (1Hour => 15m has been just great, but wearisome watching!)…but which means there is less to actually talk about!

It is becoming difficult in the oil markets to understand why do organisations insist on reporting data which is not only contradictory to each other and but also totally out of line with the so-called “experts’” opinions. Is it that the data compiled by the organisations is so unreliable or that the industry analysts don’t know how to compile it - or are they simply looking at different things? I mean, how difficult is it to add up the content of crude storage vessels at a certain date? Apparently very difficult!

Yesterday’s API release on oil stocks reported a build of 882,000 barrels in US crude oil inventories, compared to analyst expectations for a draw of 2.3 million barrels for the week ending May 12. Not only are these figures wildly different, but in totally different directions…let’s see tonight if the EIA is any closer to either of these figures!

But the end result is we get headlines like these three, from the same author, only a few weeks apart:

Oil Markets Whipsawed As API Reports Unexpected Crude Build - Apr 25, 2017
Bullish API Data Prevents Oil From Falling Further - May 02, 2017
Oil Prices Slip After U.S. API Reports Build In Crude Stocks - May 16, 2017

OK, comment on issues like the likely impact on future stock levels and prices from OPEC developments, etc is educated opinion, but Oil stocks are current, concrete, factual data - so why are these reports so unreliable and, if unreliable, why bother reporting on them, or trade according to them?

But, that is the nature of the trader animal, the elusive carrot and the eternal herd. It is hungry and wants feeding, and will eat whatever it is given - good, bad, or indifferent. And others are paid to feed it…if nobody stirs the spoon we all get bored and go home hungry! :smiley:

We are close to the OPEC meeting now, and, as we already saw at the weekend, we can expect to see the surprise rabbits being pulled out of the hat. Russia and Saudi Arabia already pulled out the “extending the agreement beyond the anticipated year-end”. There will no doubt be more of the same on and before the day…or should we say that if there is not more of the same then where will oil prices go then!

The one thing that is for sure, oil price will continue its fluid dynamics in every which way it can - catch it if you can! :smiley:


Whilst in the meantime the US just keeps on pumping like crazy! :smiley:

pumpjacks.jpg700×350 26.5 KB

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So it is OPEC day at long last. Will be nice to have something different to focus on once this is out of the way. Since this thread is my kind of thinking-out-loud notepad, I haven’t bothered putting anything here during the pre-OPEC meeting, but, when I came here now to write this, I am astonished…

I have always been a little skeptical of the viewing statistics shown here on BP threads, but now I am really suspicious of their accuracy - how can the total views here have increased by about a [I]thousand [/I]when I haven’t even posted here for a week!!! This is not even a mainstream topic or commodity on this site that would have generated searches. Are there really people out there who have been reading this? If so I feel a little guilty as I have only really been writing to myself and not considered too much how what I am saying might be appearing in others’ eyes!! Óops! I do believe that an OP does have a responsibility for their thread and I will try to be a bit more conscientious in the future - if, that is, these viewing stats [I]are [/I]real and not phantom marketing stuff…

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Well that was a fast response after my first post in a week - only 15 mins later!!!. I guess that makes you a Bot called susannair. Well, Bot, I am flattered by your enthusiastic appearance here - but this thread is [I]not [/I]about your sales promotions …

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So we have the confirmation of the extension to the OPEC + deal for a further 9 mths. This was followed by a significant sell off partly due to a lack of increase in the actual amount of the cuts. Also Libya and Nigeria are still excluded from the deal due to their domestic problems. There are also doubts (of course) about the continuing degree of compliance amongst members…and of course the continuing growth in US shale production towards the 10 mill b/d level.

Today was a special day, but not because of OPEC. Apart from closing out a last long trade before the OPEC meeting, today was dedicated to the memory of Finland’s past president, Mauno Koivisto, whose State funeral took place in Helsinki today. A veteran of the 2nd World War, Chairman of the Bank of Finland, Minister of Finance, Prime Minister and 9th President of Finland.

The markets had a good shake-out today with a drop that took us right back below even the Daily 200 SMA. This is good. Now we will see the price settle and move according to a new set of conditions and market forces.

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After the dust settles overnight on yesterday’s OPEC meeting’s outcome and the subsequent drop in crude oil prices, it is easier to see where we are now.

In a way, it was a classic “buy the rumour, sell the fact” event. The market had been taking prices up based on strong indications that the current agreement to cut production levels amongst both the OPEC nations and other non-OPEC countries (incl Russia) would not only be extended, but may well be extended even further than the end of this year. In fact, it was extended by 9 months to March 2018. So why the sell-off?

Since this extension was already fully anticipated, having been already publicly agreed in principle by many participants prior to the meeting, many watchers (including me) were anticipating an additional surprise “extra” from OPEC to excite the market and give it a good push upwards - but it didn’t come. I was anticipating an extra boost from a surprise increase in the size of the cuts or even by the inclusion of additional participants. But I got a gut feel before the meeting that maybe this was not on the cards afterall, and closed out my long “bet” on the outcome. I am now flat.

But the only conclusion was that a continuation of the same reduced production levels for a further 9 months would be sufficient to clear the current global oil glut and bring the market back into balance. But since the current agreement has failed to produce any significant reductions in stocks so far, and the US shale producers are still increasing strongly their own production levels, there is a feeling that little has changed - or will change - so, of course, disappointment means sell…
So what are we left with?

Precious little I think. We are now in exactly the same pincer movement that has dominated markets since last December: The same OPEC agreement will put downward pressure on stocks and upward pressure on prices - which encourages US shale producers to increase their own production and put upward pressure of stocks and a consequent downward pressure on prices.
Key points, I think, are:

  • That the principle OPEC ambition is to bring the market back into balance, not primarily and specifically just to push up prices, which would be more of a consequence of a balanced market rather than an objective in itself. Therefore any slow readjustments in the supply /demand equation do not necessarily equate with significant rises in prices.

  • Any significant collapse in prices would approach breakeven cost levels and start to retard production in US and elsewhere, which would accelerate the attempt to reduce oil stock levels globally.

  • If and when the extended OPEC/NOPEC agreement starts to balance oil stocks, will we continue to see the same, exceptional, level of compliance amongst the participants of the agreement - or will we see the cracks starting to appear and undermine the success of the project? Who will be the first with a false start to increasing pumping as the agreement ages.

  • And what happens after the agreement, next March. Do we return to a free-for-all with everyone pumping like mad to gain/regain market share or with some other form of market regulation.

The only conclusion I can see at present is that we continue within the same broad range with a cap over price extremes on the upside from the US shale production and a floor supporting prices by the breakeven cost levels at which production taps are slowly turned off…


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Following the OPEC meeting on 25th May, it would appear that the market will remain largely focused on the supply side for the foreseeable future.

At the 172nd Meeting of OPEC, the Member Countries agreed to extend their current production cuts for a further 9 months as from 1st July. Directly after this meeting OPEC held the 2nd OPEC and non-OPEC Ministerial Meeting with their counterparts from the non-OPEC oil producing countries that have been participating in the cuts. Together, these countries have agreed to continue reducing production levels by a total of 1.8 mill barrels/day. Compliance with the current agreement has been high, especially amongst the OPEC member states. It remains to be seen if this continues throughout the next 9 months.

The 14 OPEC Member Countries (now including Equatorial Guinea) are:

Algeria
Angola
Ecuador
Equatorial Guinea
Gabon
Iran
Iraq
Kuwait
Libya (Excluded from the cuts due to internal conflicts)
Nigeria (Excluded from the cuts due to internal conflicts)
Qatar
Saudi Arabia
United Arab Emirates
Venezuela

and the 10 non-OPEC parties are:

Azerbaijan
Bahrain
Brunei Darussalam
Kazakhstan
Malaysia
Mexico
Oman
Russia
Sudan
South Sudan

The aim of the cuts is to reduce the global excess of crude oil inventories to the level of the 5-year average and to support price levels that are consistent with encouraging fresh investment in new exploration and production and relieving pressures on oil-dependent national budgets.

The main contrary factors working against the impact of these production cuts are increased production from other producers outside the agreement, mainly the US, and weakening global demand for oil products.

A see-saw time for sure lies ahead…

oil-glut.jpg.size.custom.crop.1086x560.jpg700×361 26.7 KB

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232

For some time now, oil commentary has been narrowly focused on two opposing supply-side components: OPEC’s production cuts agreement and the US shale oil boom.

But there is maybe a third major factor that is not highlighted so much, but may have a major impact on oil prices in the near future - and that is China.

China’s own oil production is peaking and expensive to extract, and its domestic consumption vastly, and increasingly, exceeds its own production. But it is the scale of both China’s production and its consumption that makes this significant. Both are huge and any significant changes in either of these will have significant implications for the world oil markets…

china production consumption.jpg700×350 28.4 KB

China as a producer

China is one of the world’s five largest oil producers, along with Saudi Arabia, the US, Russia, and Canada. But its fields are depleting, ageing and increasingly expensive to pump. Today’s lower oil prices also reduce producers’ incentives to boost drilling and increase production.

As in the US, China also has large potential shale oil reserves but exploiting these is hampered by local legal, regulatory, and ownership facors. Also, geologically, China’s shale oil is located in rock layers that are more ductile and less “fracable” than the brittle marine shales found in the US.

China also has offshore drilling projects but their potential production is only likely to slow down the rate of reduction in conventional drilling rather than replace it.

China as a consumer

China is also a massive importer of crude. Its dependence on imported oil started in 1993 when demand began rising faster than its domestic production. According to the EIA, China became the world’s largest net importer of petroleum by the end of 2013and in 2015, imported a record 6.7m barrels a day.

China’s oil sector

China’s oil industry is dominated by its state owned oil companies, mainly China National Offshore Oil Corporation, China National Petroleum Corporation, China National Refinery Corp, and Sinopec. These companies have responsibility for developing the country’s domestic reserves, building and operating pipelines, managing China’s downstream sector, and filling its strategic petroleum reserves (SPR). China has one of the world’s largest strategic oil reserves. These global strategic petroleum reserves (GSPR) refer to stockpiles of crude oil held for national security during an energy crisis.

Investment by these companies has largely been targeted towards exploration and development in other countries that had oil fields but not have funds or technology to develop them.

In 2009, China also completed its first critical oil pipeline, the Kazakhstan–China oil pipeline in Central as part of a larger overall trade expansion with the Central Asian region

[U][B]Implications

[/B][/U]The huge impact of any changes in China’s growth is understandable when we consider that Chinese oil demand is expected to expand by 400,000 barrels per day to 12.3 million barrels per day (mb/d). This Chinese growth alone is essentially almost one-third of the total global demand growth, estimated at around 1.3 mb/d this year. So any softening in demand will be significant in a global market already saturated with oil.

On the other hand, if China has a stronger economic performance, it could also boost momentum to a tightening oil market. With expected strong demand figures and a falling domestic oil production this translates into increased need to import more crude to make up for the shortfall.

China-Today_oil_reserves_and_demand-en.svg.png700×510 643 KB

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233

Plenty to talk about and trading for the new month is off to a plus start…

…but a more urgent task presents itself - learning this totally different site! Decided to mirror the occasion with a new look to my own charts too! :smiley:

Not trading tomorrow as its Friday and will be back on Monday in full swing (if I don’t get lost in the new BP corridors…)

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After a good perusal though this new version of BP I have to conclude that I no longer feel I belong here at all. It lacks all its former personality and feels totally sterile. I no longer feel any inspiration to post here. The pages are totally bland and the details of the posters almost without any identity beyond a meaningless username and a miniscule avatar. All character has evaporated from the site.

So I am terminating this thread here.

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I just found this forum. I was not a member of this site, but joined because of this board.
Manxx, as the originator of this board, you should return. I have found this information extremely valuable. You are doing an absolutely outstanding job with your posts. As someone attempting to transition to crude oil trading more frequently, I have taken so many notes. If you do not return, I’d like to thank you for all that you have shared here!!!

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Are you serious, VictorS? I just got an e-mail about your post above - thank you for your very kind and encouraging words!

I am not by any means any kind of veteran in oil trading but I am still finding it both fascinating and profitable. I confess that I have just started posting this weekend elsewhere, but if you are really interested in sharing some thoughts about Crude OIl then I will put my thoughts and discoveries here.

If you have been following my posts here then you will have seen that I am following two methods here. In addition to my own charts I am also following the direction of the “High-5” method promoted on this site by Turbonero.

To bring you up to date with the High 5 situation, it just closed its 5th consecutive win on 28.6. with a profit of 402 pips and is now long from 44.42 (WTI) - currently an open profit as at close 30.6. of 179 pips (stop currently at 42.605 being low from 26.6.)

I just posted elsewhere my views on where we stand right now after last week’s strong rally ahead of the “extended” weekend to include US Independence Day next Tuesday. and I’ll copy it here at the end.

If you really wish, and find it useful, then I will of course naturally continue posting my stuff here - I prepare it anyway so its no problem - just don’t hold me to any views! :smiley:

As I state below this Daily chart is not a trading chart - I just compile there all the indicators that seem to be widely used and it does seem to give a visual on where we are at any time. My own charts are bullish from 4H downswards but this Daily is pointing more to just a retracement at the moment. Maybe up to 49 dollars or so before we could say that we are starting a serious, longer term bull trend as such. I dont feel the longer term underlying fundamentals changed at all last week so I am very wary of the upside potential here unless next thursday’s EIA figures point to a possible more significant shrinking in US production output. I don’t see that happening if drilling is still profitable, afterall, we are still talking of US reaching record production levels and in line with Mr Trump’s ambitions to increase all hydrocarbon output, be it gas, coal or oil…

But the US upstream industry comprises many private companies and their breakeven price varies a lot. They will drill if there is a profit and shutdown when the price is too low.

So here’s where I am right now:

Last week was a firm, consistent upward move which, in my opinion, was generated by two things:

  1. The week produced first signs that prices approaching USD 42 per barrel are starting to edge below the breakeven level for many conventional and even some US shale oil producers. The EIA figures on Wednesday revealed a slight drop in US weekly production and the Baker Hughes US rig count on Friday evening showed the first drop in 23 weeks - albeit only by 2 rigs.

  2. The market was apparently already heavily short and the above -mentioned data prompted short-covering/profit-taking ahead of an exceptionally long weekend with the US Independence Day holiday on Tues 4th July (preceded by Canada Day on Mon 3rd).

But the question is will the upside be further extended beyond Tuesday?

The core fundamental issue is still the global excess in crude oil stocks and that has not changed. The OPEC production cuts are still being largely neutralised by increased production elsewhere in, for example, the US, Libya and Nigeria. Also, on the demand side, projections are being lowered across the globe by many analysts.

So, I think last week’s upmove was more a bounce off the bottom than a start of a bull move. Further price increases will induce further production increases which, unless OPEC decides to deepen the level of production cuts, will again cap prices as producers start to lock in levels.

The Daily chart below is NOT a trading chart. It is just a collection of major indicators that are variously used by traders which helps to put a broader picture on where we are - from the bottom upwards as follows:

a) RSI is neutral
b) Momentum has just turned bullish
c) We are still under the 50% Fib retracement of the last move (at around 47.00)
d) We are still under the Ichimoku cloud
e) We are still under the 200SMA

I would expect to see Monday as a quiet trading day with a range held by roughly 45.75 - 47.00.

The rest of the week will probably depend on the EIA release on Thursday, after the holiday, as this was catalytic in the rebound last week and US production is perhaps the most sensitive issue around at the moment.

Daily 1.7..png575×884 18.9 KB

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237

Export opportunities to Asia and big U.S. summer driving demand, which are forecasted to hit a record over the July 4 holiday weekend, are seen as the primary drivers for a drawdown in stocks that remain above seasonal averages.

July is usually a big month for drawdowns. According to the U.S. Energy Information Administration, inventories of crude oil have dropped by an average of 2.9 million barrels per week in July over the past 5 years.

There’s also the opportunity for U.S. crude exports to Asia. After prices made it expensive to ship U.S. supplies offshore in recent months, there’s now increasing demand from Japan and South Korea. This demand could help reduce excess supply.

If inventories do not draw down though, we probably won’t see higher prices by the end of this year.

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238

Yes, it is interesting to note that US crude oil and petroleum inventories are expected to fall and that they are so widely focused on. But they are not the global figures - they are just the most visible!

In fact, the US is still a net importer of oil, partly because many US refineries were designed to work on heavy crude and shale oil is unsuitably light.

It was interesting to also read reports that Saudi Arabia may even be reducing its imports to the US as a way of further increasing the drawdowns in the EIA reports and helping to firm prices…sneaky! :smiley:

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Hi Manxx

Good to see you post here again.

I don’t trade oil, Euro is my thing, but your input is very interesting.

The new site is far from intuitive, only the other day did I find the stuff low down on the homepage but hopefully the young designers will get their act together.

Haven’t seen Turbo about in a while, but maybe when I get used to this new look I’ll visit a little more.

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Hi Peterma! :slight_smile:

Good to hear from you, too!

I hope so too! I still find this so impersonal - leaves me cold compared with the former version - but that is the way of the world in most things, it seems.

I look forward to that…:slight_smile:

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241

We were talking a few posts back about US imports and exports of oil products. Here are two interesting charts from the EIA going back to 1991:

US imports

US imports chart.png970×647 40.2 KB

US exports

US exports chart.png970×647 32.9 KB

Amazing growth in export volumes in recent years.

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Manxx, I am very glad you have decided to post here again! As I’ve stated, I only joined this site after reading your board recently. I think it’s now obvious that others are finding your posts useful and informative.
Once again…I am glad your back.

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