I’m curious Manxx, we all hear the supposed expression during the current time of the year being “summer doldrums”; quite simply relating to reduced volume and increased potential volatility as a result. Do you see any differences relating to the crude oil markets? As a pure FX trader I’m curious on your opinion. [Putting to one side the juvenile comments made in the heat of the moment in other threads, please]
That’s ok. Forgiven and forgotten. Anything else is just a distraction in our world! 
[quote=“RISKonFX, post:304, topic:83773, full:true”]
I’m curious Manxx, we all hear the supposed expression during the current time of the year being “summer doldrums”; quite simply relating to reduced volume and increased potential volatility as a result. Do you see any differences relating to the crude oil markets? As a pure FX trader I’m curious on your opinion.[/quote]
This is an interesting and relevant issue. But firstly, I have to remind that it is only about 5 months ago that I stepped off the well-trodden, familiar tracks of the forex path onto the slippery slide into the black, slimy pits of Crude Oil! I haven’t previously traded through even one summer period of oil, so take what I say here with the appropriate degree of caution/skepticism!!!
I have so far realised that CL does have a very different character to most forex pairs but the same TA principles seem to work here as in forex, maybe even more reliably - and I think there is a reason for this.
If you look at the chart below, I have marked the July/August weeks since 2008, that’s nine years/summers and I don’t see any particularly significant slowdown during these summer months. Of course, weekly charts do not show any change in daily or intraday volatility, fluctuations or volumes.
I also think that maybe oil is a different beast to forex. It is a more tangible, concrete, visible commodity than forex, with a much longer production cycle from exploration through drilling, transporting, refining, more transporting, storage, more transporting, to eventual final consumption. The factors affecting supply are naturally very significant but again are long-term in being realised. On the other side, demand factors are probably very similar to those affecting forex, except that maybe the summer season has some additional consumption pressures relating to, for example, the tourist industry and travel. Also, the warm summers of the northern hemisphere are the cold winters of the southern hemisphere and heating/energy needs continue.
Another difference is that oil is focused on one specific industry along with all its individual components, and the entire industry is watching the same factors and reacts as a whole to any events whether it is summer or not. Whereas forex is the result of an entire blend of interrelated industries, economies and politics and therefore perhaps more vague when trying to visualise what is actually going on with any given currency pair.
The oil market is huge, as is the forex market, and clearly has an enormous speculative element, just like the forex market, but I get the feeling that a bigger proportion of the speculative parties in oil are more commercial, industrial, institutional, and national than with forex, and therefore a larger proportion of these views are, as a result, longer term in nature. Which means exposure monitoring is a continuous process regardless of seasons.
In an nutshell, oil is a commodity every person, every industry and every nation needs regardless of the season. Forex also continues all year round in the real world of actual commercial transactions but the speculative element maybe finds it easier to take a break and relax with its winnings for a few weeks in the sun! 
An interesting perspective on what is the price of crude oil - an extract from an article published by Oilprice.com:
"with constant discussions over whether [oil prices] will drop below $40 or if they are set to rise. What many investors are unaware of, however, is that there are over a thousand types of crude oil. This means that Western Canadian Select, trading at 36.77, is already below that much-hyped $40 mark, and while Brent oil prices fell nearly 50 cents on Thursday, Qatar’s Marine blend was up by a dollar.
From the giant Daqing oil field in China, to the offshore Girassol oil field in Angola, oil is produced around the world at differing levels of quality and with varying costs. A barrel of Alaskan North Slope will cost you nearly $50 in today’s market, while Ecuador’s Napo crude is currently trading at less the $40. And all of this oil then battles for market share across the globe – a recent example being India’s decision to start buying U.S. crude in order to replace the OPEC imports that have been growing increasingly expensive."
Hope you don’t mind me joining in. I’m long oil through Tullow but am considering moving into options.
I’m expecting a big rally for Aramco’s listing next year, lots of positive momentum recently and probably helps that there’s no more spr selling and Trump sold 110 billion of arms to SA.
So, hello and look forward to your updates!
I also think buying USOil (FXCM instrument) between 50 and 20 can be profitable. Small positions, 10 pips grid, with a bot to run it 24h… I wish I had the margin for such a thing.
The oil market has been reasonably tradeable on the shorter term basis since the end of the summer and offered some good moves. Maybe it is time to start putting this back on the “front page”. It has recently been a good market to trade from the long side (which is always my preference with a commodity) but I wonder if we are now reaching levels that are going to be tough to exceed.
Just looking at the daily chart since the start of the year, below, with no MAs suggests we are at a vulnerable height here. I just closed my last long position today. Now it is time to wait, stay neutral, and see if we get a sell signal from here…or not!
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Fundamentals
Oil prices are still caught between the same opposing forces as they have been all year.
On the supply side, there is the overall increasing production of US shale set against the continuing OPEC+ group’s daily cuts of 1.8 mill b/d. There has been some reduction in the overall global excess in oil stock but not to levels that can be described as a significant change. Excessive global production will continue to keep prices lower.
On the demand side, there is still the anticipated large-scale increase in demand from countries such as China and India. Significant growth in demand from these and other regions will soon result in a balance in oil stocks and put a floor under oil prices if not an actual increase in prices.
Whilst there is a big increase in alternative energy sources and automotive fuels, there is no doubt that fossil fuels are a major energy source for a long time ahead…
Technicals
We are still holding up in this resistance band around the highs for this year. Only the hourly chart is giving some slight indication of a possible weak close tonight. However even the hourly is still above yesterday’s daily pivot and no crosses in MA’s yet. As with yesterday, there is still no signal yet to suggest actually going short, only some reasons to consider closing or reducing long positions at this level…
These charts are only to illustrate the above comments and are not intended as any kind of trading system or strategy.They are drawn in accordance with my own version of Keep It Simple-Simon :
Daily chart:
IH chart:
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Update on a Friday evening…
The price did manage to break down through the daily pivot and reach the lower S/R line…and bounced straight off it up to, and through, the upper line. This formed a classic compression and breakout on the hourly chart. The uptrend is indeed still intact.
Hourly:
The Dilemma Of The Short term Trader
It is a Friday afternoon. The market approaches a resistance level. You have a profit on your long position…but this is no ordinary resistance level, it is at a high beyond which we have not been for over 2 years, and only touched once in the interim! You close your position ahead of the weekend and feel comfortable about that…then, a few hours later, the price rallies, breaks the resistance line as if it never even existed and gains another 60-70 pips straight up. Hah! such is the life of a short term trader!
The strong bullish tone to the market is primarily based on signs that the OPEC/NOPEC agreement concerning output cuts will be extended again beyond the March deadline to the end of 2018. Not only that, the earlier extension was marred by a lack of an “exit plan” detailing how production levels would be raised after the agreement terminated. This created fears that the oil glut would simply reappear immediately. But it is suggested that the current discussions will now include a plan how to return to normal production and avoid a return to excessive oil stockpiles in the future.
Although OPEC was the underlying bullish factor, a boost to the late buying was provided by the rig count data release showing a significant drop in US oil rigs. This is seen to be reflecting a slowdown in the rate of growth of US shale in the Permian basin.
Would a short-term trader buy into new highs on a Friday evening? Does a long-term trader ignore such individual releases and gain from just such unexpected jumps in prices? There is the dilemma. On the other hand, price alone is not the only factor here. There is also position size, the eternal issue of “100 pips with 1 lot or 10 pips with 10 lots”- which is easier? which carries least risk? which is more effective in both trending and ranging markets?
These are the kind of issues that a trader needs to identify in order to recognise what kind of trader one is and what are the rules, criteria and constraints on one’s decisions. Consistency is a very big key word in trading and is not achieved without knowing one’s “rules of engagement”.
There are so many dimensions to ponder…
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An interesting and inspiring topic for a lazy Sunday afternoon.
Whilst most of the current talk is concerned with the bullish reasons for oil to go higher - e.g. higher demand from global economic growth, limitations and restrictions on new supply, Saudi Aramco’s planned IPO, etc, there are other people with some other views on where we are going price wise.
One such topic is the growth in electric vehicles (EVs) which, if it reaches sufficient proportions could lead to peak in global oil demand in as little as 5 years from now, which could result in oil prices crashing to as low as $10 a barrel. This being based on the fact that about 70 percent of oil is used for transportation.
There was a time not so long back that we heard cries of peak oil. But at that time “peak” was in terms of supply and diminishing reserves no longer capable of meeting continuing demands. But now “peak” is being considered in terms of demand.
It would only take major economies like China and India to commence significant advances in changing to EVs, especially with their current environment pressures, for this impact to be felt. China now being the world’s largest importer of crude…
I had also thought of going electric when I bought a new car last year, but I was still concerned with limited driving range per charge and sparse supply of charging points on the road network - but maybe next time…
That’s an interesting take on it Simon, I think in the UK we have just realised that the Govt having stopped us smoking for the pressure groups, they have lost a huge tax take, and in so doing have been responsible for the destruction of “Pubs” as we knew them (as social centres of communities) and the closure of a great many, with the resultant crash in tax take. had realised that the submission to the pressure groups was going to send us “Electric” at some point with a crash in Tax revenues from our exhorbitant fiuel prices, but never thought that it might be a “Golden” for fuel prices at the pumps due to declining crude prices. It may be worth collecting a few old diesel cars to sell on when “Electric” becomes compulsory for new ones ! thanks @Simple_Simon
[Edit - I’ve heard a few querying what will happen to Heay Goods Velhicles – will they need to “Go Electric” too ? ]
[quote=“Falstaff, post:315, topic:83773”]
but never thought that it might be a “Golden” for fuel prices at the pumps due to declining crude prices. It may be worth collecting a few old diesel cars to sell on when “Electric” becomes compulsory for new ones ! [Edit - I’ve heard a few querying what will happen to Heay Goods Velhicles – will they need to “Go Electric” too ? [/quote]
Hi @Falstaff
Ah yes, the great British local! oh how I miss that! I’ve been away far too long!
There are already big moves to improve efficiency of HGV’s but since they are almost by definition long distance vehicles and would require huge batteries to provide sufficient power v. weight on a commercial basis then I think it might be a long time before we see them all electric, if at all?
But there is a move towards smaller electric commercial vehicles within cities etc such as this Daimler battery-powered eCanter truck:
Personally, I also suspect that we will not see oil prices actually drop anywhere USD 10 per barrel even if there is a dramatic drop in consumption of petrol.
The reason being that crude has to first be got out of the ground, then transported to the refineries, then processed, then distributed to the pumps…already after the last crash in oil prices the oil companies have cut their costs to the bone and still have a breakeven, at best, around USD30 a barrel, and many producer countries are not even near that. I dont see much room for significant further improvements in that in the near term.
So I would suspect that as oil prices drop, if combined with a consensus that it is a permanent structural change due to EVs etc, then production would also start to shrink with the most expensive well-heads being progressively capped off. Thus keeping supply/demand in some sort of balance.
But I doubt it will be anywhere near that simple a process as Simple_Simon describes it!
THe Law of unintended consequences is bound to kick in here 
They don’t exist any longer mate - I used to be an “Every night man” - haven’t been in a pub for 15 years - mostly they are boarded up or converted to Tescos now. The last time I went in my “Local” it had a TV screen in the “Gents”, so the punters wouldn’t miss a goal when they were watching footbal !, No darts team, no crib team, no dominoes team, Didn’t know a soul in there when we went ti the “New Years Eve Party” - and this our own “Village Pub” Want a roof mending ? No local roofer in the pub - “Googla it” !
Facebook, cups of coffee and no Ash trays.
That is really sad. My three non-human loves (unfortunately the last one is still a dream ):
e-type ? When I was a lad my mate won a “share” of “the pools” and decided to buy the “E-type” - His fiance said they should bring the “Wedding” forward and if he bought the “E-type” the engagement was over ! 
Sadly my little brother was invited to go on the “Honeymoon” with him, because it was already paid for 
Bloody nice car though ! 
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Not really much to say this Monday mid-day.
Naturally, all the charts are still bullish, but the question now is how much fuel is still left in the tank to possibly drive this still higher?
We are now moving into price territory that has not been seen since 2015 and there are no recent S/R levels to look at. I think any S/R from 2 years back is not so very relevant today since a lot of structural change has happened since then.
If we take a look at the weekly chart we can see that the only area of any significance back then was an oddly formed band with lots of long wicks both above and below a broad range from 59 to about 60.50 which lasted a full 2 months. This band is still some 300 pips above where we are now and could easily become a target area given the bullish sentiment right now. So there is still some potential meat on the move - but will it transpire? If Saudi Arabia has anything to do with it then, yes, it will, and some more, too. But then they are biased by their forthcoming Aramco IPO
However the 4-Hour (with a green band showing the equivalent daily band superimposed), whilst confirming the price moving constantly above the daily line, also shows us very close to the top end of the current channel and lacking a retest of the highs from earlier this year:
I am still looking to trade from the long side, but I am going to risk missing the bus and wait for a reasonable pullback…
Let’s see!
Just to balance the picture, it is not all just “good news”. One bearish warning concerns rising US exports:
“The highlight you need to watch for the next few months is going to be more record breaking exports of crude oil. Our view is that it’s going to soften the price for Brent,” Tom Kloza, Oil Price Information Service
He adds that the United States can export up to 15-20 million barrels of crude weekly, which is an amount that has no historical precedent.
Well, we don’t want trading to be too “simple”, do we?
So the day went according to plan with a nice pullback to Friday’s close, followed by a sharp rise that didn’t really even look back before putting on another 100 pips…
it is now really difficult to define any targets since we are well into price territory not visited since 2015. My lowest resistance from that era is around 58.10 but, like I suggested earlier, those levels from back then do not have any great fundamental relevance today.
But with a locked in profit, it is worth hanging on here and seeing where we go for a bit longer. On the other hand, is this a “too much,too soon” situation born from overdose of bullish sentiment, where it is worth considering closing and buying back lower down later…
Of course, this week’s crude and petrol inventories figures will have their usual impact…in the meantime perhaps I’ll go and tank up the car…
Oil prices, whilst not moving ahead all day today, have shown no signs of profit taking or retracing beyond a few brief tens of pips. This suggests very strong underlying buying that is taking advantage of any pullback however small.
But I am not so sure about the potential for further rises from here and decided to close out and wait (and in the meantime watch EURUSD instead).
It seems to my limited understanding that most of the bullish arguments that brought us to these levels are already known to the market.
The prospect of the OPEC/NOPEC production cuts continuing to the end of next year is already generally anticipated and the recent anti-corruption clean-up events in Saudi Arabia already reinforces this likelihood. But is this really so very relevant to oil prices and how much further can this factor alone raise prices?
Oil inventories have significantly declined over the summer both from larger demand for gasoline and economic growth globally and in particular in the US due to its record growth in oil exports. Also the number of oil rigs have declined somewhat and the growth in US shale production has slowed down…but: there is still a large surplus in oil inventories and US production is still historically very high. There are also suspicions that these higher oil prices will encourage “cheating” from OPEC members which will undermine the agreement’s effectiveness
.
Whilst there remains good demand for oil and there are many arguments underpinning its price, it is arguable whether these same reasons are sufficient to drive prices significantly higher from here. It has been a good and rapid rise over the last few months, but I am beginning to suspect there might be a correction before very long that will clear out the current short-term speculative positions and I prefer to wait until we see that before re-entering.
This is not, however, to say there is any specific reason to consider going short yet! On the contrary, this week’s inventory data from API and EIA may well provide further upside potential.
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The American Petroleum Institute (API) released yesterday the first of this week’s crude oil inventories data. The consensus of analysts’ opinion was an expected drawdown of 2.7 mill barrels. The actual figure released was a draw of only 1.562 mill barrels. Whilst being less than anticipated it did show a continuation of the current downward trend in stockpile levels. Accordingly, we saw a limited slip in prices to just below $57 for WTI which has remained overnight.
Interestingly (or maybe not! ), gasoline inventories reported a small build of 520,000 barrels compared with an expected draw of 2.25 mill barrels.
All in all, considering the typical divergences between estimates and API releases, these figures are small and rather insignificant. Later today the U.S. Energy Information Administration (EIA) report on oil inventories will be released and is expected to also report a decline in crude oil stockpiles of 2.8 mill barrels. Until then maybe prices will be relatively stable around the present level (currently 56.90 WTI)
One of the most stimulating aspects of trading Crude Oil is how it draws one’s attention to major events and situations in many diverse parts of the globe. The US is naturally a major part in this currently, but so are China and India as well as the middle east nations. Venezuela in Sth America is another major global situation and we cannot omit Nth Korea, which is totally dependent on imported oil from China and Russia…And then there are the oceans and seas in addition to countries and continents.
Oil covers a vast range of topics ranging from politics, economics, wars and disputes (such as currently in Iraq, Libya and Nigeria) to geology, geography and environmental issues, and not forgetting chemical, mechanical and marine engineering as well as pipeline and shipping transportation and distribution issues…and then there is price movement (lots of it) and trading…
The current 4-hour chart illustrates the recent increase in prices and the current “breather” as prices sag a little below yesterday’s daily pivot, waiting for further impetus. The green band is the superimposed daily chart showing the 4-hour price analysis relative to the daily situation.
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