Crude Oil and oil markets

[anon46773462]

Thanks once again Peterma for another really thought-provoking post! A Sunday afternoon reflection and ponder coming up…

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.

Indeed it is not black and white - far from it I think! In fact it seems nowadays everything is at least “50 shades of grey”! Thanks very much for that link, it was very interesting reading! In terms of oil it highlights precisely the factors that make oil so important, powerful and volatile - and so fascinating:

• Supply (production) levels of oil are [I]inelastic [/I](it takes a long time before new resources are found and brought on- stream)
• Demand is[I] inelastic[/I] (consumption levels cannot be easily adjusted with any great significance in a short time)
• But availability can be adjusted almost [I]instantaneously
  [/I]- And price can be adjusted almost [I]instantaneously
  [/I]- Every country needs it for survival

Put those five criteria together and we have a fine explosive recipe that is potentially ready to erupt at any time like the best of volcanoes… that’s why I am only interested in day trading it here!

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.

Actually, from what I read here, was this not the [I]OAPEC [/I]members (i.e. just the Arab members of OPEC plus Egypt and Syria)?. And did not include the[I] other[/I] members of OPEC.

Maybe it is not totally fair to blame OPEC for the oil shock as its roots are buried in the Israel-Syria conflict and the US decision to intervene there (rightly or wrongly). The issue was a local hotspot and the oil embargo was a reaction specifically to that “interference” and not necessarily a unilateral attempt simply to take advantage of demand and make huge profits.

As with many commodities (including human slavery) the affluent and powerful West has a history of exploiting the valuable resources of undeveloped countries and making big profits for its own companies. This is still prevalent today where many of the goods that make up our high living standards are priced artificially low because they take advantage of low salaries and costs in undeveloped countries.

In that link it describes OPEC as originally being an [I]“informal bargaining unit for resource-rich third-world countries. OPEC confined its activities to gaining a larger share of the profits generated by oil companies and greater control over member production levels. In the early 1970s it began to exert economic and political strength; the oil companies and importing nations suddenly faced a unified exporter bloc.”

[/I]This reminds me of a saying “only break the law if it leads to power, otherwise it is best to obey the law”. In this case OAPEC took on the “law” of western supremacy and actually found itself powerful. But the problem with all power ultimately is whether to use it or abuse it.

That particular period of history, say, the latter half of the 20th century is, I think, intensely interesting and covers a plethora of huge, varying factors and “players” on the world stage. The post-war world was rising from the ashes and there was work in abundance and an insatiable demand for all kinds of resources. There was a victorious US and a communist USSR fighting for supremacy, there was a new -found freedom amongst youth with all kinds of movements and events like the Beatles, Carnaby Street, Flower Power, LSD, etc. But there was also the Vietnam war, Woodstock, Ohio, Bob Dylan and those never-to-be-built- again American fuel-guzzlers. There was Bretton Woods, the break from the Gold Standard, high inflation, industrial unrest, and everyone was getting wealthier. Air travel was widening leisure possibilities, computers started to become household items, communications changed inconceivably with everyone owning a TV (and even in colour!), the introduction of the internet, and mobile phones.

Then came the digital era and everything is changing again…but that is a chat for another Sunday afternoon

[anon46773462]

So a new week starts.

No significant price change over the weekend but the market still looks weak. Weekend reading suggests that the key issue is still whether the OPEC coordinated production cuts agreed at the end of last year can still support prices. The daily chart shows how prices rallied immediately after the agreement and remained above the $50 barrel level since then, supported by ongoing encouraging news that OPEC members were indeed complying with the agreement with some 90+% success.

However, the simultaneous, unexpectedly high, increase in production and inventory levels of US shale oil has brought price levels back to the pre-OPEC agreement level and even settled below the apparently important 200ma level on Friday.

Since the threshold cost of bringing oil resources on line is dropping as a result of new technology then there is every likelihood that the US would prefer to keep crude oil prices low, and production high, as a boost to the economy and in order to reduce (and reverse) dependence on oil imports.

On the other hand, low oil prices are a major concern to those countries (including the Russian Federation) whose economies are highly dependent on oil export revenues. They will not (and cannot) tolerate continuing cuts in production levels, especially when they seem ineffective anyway, and will be even more reluctant to agree to further cuts.

So it would seem that the front row issue right now is how the trend in US production continues and how the OPEC and other producer countries react to it.

That would make this Weds 15.3. a key day to watch with both the EIA weekly inventories data and the US Fed meeting regarding interest rates (which are highly expected to be increased a notch - but since this is already priced into the market the key factor would be if it doesn’t happen)!

So my overall anticipation prior to Wednesday is further overall weakness but with volatile swings. So I am only looking to take quick trades selling into rallies. So entry levels are going to be a key issue here and for that reason I will be trading off a 5 min chart at least until Wednesday’s releases…

Here’s a look at the daily chart showing the change in prices since the end-Nov OPEC meeting:

Edited to add: Reminder! This thread is my learning curve regarding trading crude and is not intended in any way as a trade recommendation!

[anon46773462]

This from the White House official site concerning energy policy:

[I]“Energy is an essential part of American life and a staple of the world economy. The Trump Administration is committed to energy policies [B]that lower costs for hardworking Americans and maximize the use of American resources, freeing us from dependence on foreign oil.”[/B]
…
“Sound energy policy begins with the recognition that we have vast untapped domestic energy reserves right here in America. The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. [B]We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves,[/B] especially those on federal lands that the American people own.”
…
“In addition to being good for our economy, boosting domestic energy production is in America’s national security interest. [B]President Trump is committed to achieving energy independence from the OPEC cartel [/B]and any nations hostile to our interests.”[/I]

https://www.whitehouse.gov/america-first-energy

Edited: Typos - mine, not the White House!

[anon46773462]

Libya is a North African arabic country with a population of over 6 million. Its economy depends heavily and primarily upon petroleum sector revenues, which account for practically all export earnings. Libya is an important global supplier of light, sweet (low sulphur) crude oil. The majority of its oil is exported to European markets.

Whilst Libya was not a founder member of OPEC, it did join only a few years after OPEC’s formation (1960) in 1962 - a year after Libya began exporting oil. Its proven crude oil reserves are the largest in Africa and among the ten largest globally with over 48 billion barrels as at end 2015. This represents about 4% of OPEC total oil reserves. The country’s oil output is dominated by the state-owned National Oil Corporation (NOC).

Libya’s hydrocarbon production and exports have been substantially affected by civil unrest since its civil war in 2011, when its hydrocarbon exports suffered a near-total disruption. The minimal and sporadic production that occurred in that year was mostly consumed domestically. After a temporary rebound in 2012, GDP again contracted by almost 14% in 2013 and by 24% in 2014, reflecting the ongoing production disruptions.

The country is currently divided between rival east and west powers, which are both still fighting for control over the country’s hydrocarbon facilities:

The eastern forces comprise a collection of militias and eastern tribal forces as well as the remnants of the Libyan National Army. Their forces seized the oil facilities last year. The U.N. called on them to hand them over to the Tripoli government, and when this was refused they were regained by the west, Tripoli, by force.

The western forces come under the Tripoli government which was created under a U.N. deal in the hope of ending the east-west split.

[anon46773462]

Good volatility so far - as anticipated. I’m not going to post here every trade, but this was a good example of what I am looking at from now to Weds evening.

This is the 5m chart where the ribbon crossed both on the main chart and on the MACD (red-ringed). At the same time it also broke below the band on the 15m chart, not shown here, which confirmed an entry.

As usual ( ) I jumped off a bit too early (I should have normally waited until the close shown in the second red ring) but it was a good move to the close of that next bar - and (psychologically) an encouraging start to the week…

[lexys]

(Not too relevant in this context, admittedly, but Libya is also one of the closer neighbours of Malta, unaccountably not shown on the map above! :o )

[anon46773462]

Country profile Malta - No oil but the jewel of the Mediterranean :

[anon46773462]

Been nothing else to do so far today since the longer TFs have remained above their signal levels. Plenty of activity going nowhere…Technically speaking, I guess I shouldn’t really have even taken that first trade this morning since the 1H chart was upwards in spite of the down daily and 4H, but, well, it was kind of obvious that there would be an early push to test the downside and the 5m opened the gate…But I am now waiting for a cross on the 1H before selling again.

In the meantime, I came across this pithy and pointed quote from Dubai’s Sheikh Rashid bin Saeed Al Maktoum concerning over-dependence on oil revenues:

[I]“My grandfather rode a Camel, my father rode a Camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a Camel.” [/I]

[anon46773462]

…and one other thing, tomorrow, 14.3., OPEC publishes its March volume of the OPEC Monthly Oil Market Report.

This is described on OPEC’s site as[I] “covers major issues affecting the world oil market and provides an outlook for crude oil market developments for the coming year. The report provides a detailed analysis of key developments impacting oil market trends in world oil demand, supply as well as the oil market balance.”
[/I]
What with the EIA inventories and Fed news on Weds, we’ve got lots of room to move…

[anon46773462]

Even though the longer TF didn’t offer up any trades today, I am really pleased with the 1H chart which, although trading below the band, did not give any crossover of the ribbon to the downside to permit shorts from the 5m chart, which has been zigzagging up and down all day - and which would have ended up with a string of whipsaws if traded without the longer TF consideration.

I also experimented a bit with trading from a 1m chart (which I never normally touch) just to see if today’s kind of whippy action would be tradeable on a scalping type basis (remember, I’m a Newbie at trading Crude Oil!). But the results were very mixed, and with a 5-pip spread on CFD’s was not successful and ended up on the minus side. So I will leave that alone. But that is how we develop our ideas

Here is today’s 1H chart with positive ribbon and positive MACD all day:

[anon46773462]

No change overnight. Longer TFs still technically in negative/neutral territory. short term neutral. Today we see publication of OPEC monthly report, which generally contains a lot of interesting articles but not likely to contain anything sensational from a short term trading perspective - especially ahead of tomorrow’s weekly inventories release which is the current focus point.

In the meantime, the IEA (International Energy Agency) released yesterday its latest annual 5-year oil-market forecast: Market Report Series: Oil 2017

Whilst trading focus at present seems to be almost entirely on the supply side, i.e…:

[I]- Will the OPEC (and eleven non-OPEC producers) agreement to substantially cut production levels last November succeed in supporting oil prices? (It has achieved about 98% compliance so far from members and even the non-compliant, UEA and Iraq, have agreed to catch up, via drill well maintenance shut-downs etc, before the reduction period ends in June.)

• Will the OPEC-led agreement be extended beyond the current arrangement in May? (These cuts, combined with low price levels have already caused severe economic problems in many countries causing savings programmes, cut-backs and cancellations in projects. These countries will not easily be persuaded to extend production cuts if they do not seem to be working successfully.)

• How far and how quickly will the US shale oil production be increased? (Reserves are huge and the technological costs of upstream development have reduced considerably especially with horizontal drilling and fracking processes. Also US ambitions to reduce import dependency[/I])

…The IEA report reminds us that there is also a demand side and that demand is expected to increase consistently and strongly throughout this 5-year period. Here are some demand-side highlights of the report:

[I]Our outlook for demand in this report is little changed from the one we published a year ago: global oil demand is expected to grow on average by 1.2 mb/d each year to 2022.

This net global figure contains OECD demand falling by an average 0.2 mb/d per year due to long term trends in fuel efficiency standards and changing demographics. In the non-OECD countries, there is still plenty of growth potential and we expect an upside of 1.4 mb/d each year to 2022.

India is gradually becoming the focus of attention as Chinese demand growth slows. Twenty years of strong demand growth in China, fuelled by rapid industrialisation and infrastructure spending, is giving way to a slower pace as the Chinese economy moves towards a services and consumer-led structure. Indian per capita oil consumption is just 1.2 barrels per year today, and the number is expected to reach 1.5 barrels per year by 2022.

That is also probably true for transportation fuels in many other developing economies, as more families move up the income scale and buy their first car. In our forecast period, this will almost certainly be gasoline-fuelled. While the much-discussed growth in the electric vehicles fleet is a very important longer term issue for oil demand, by 2022 we estimate that only limited volumes of global transport fuel demand will be lost to EVs from conventional fuels.

Regarding tighter vehicle efficiency standards now being applied to trucks for transport fuel demand. Even though big savings will be achieved over time, within the five-year outlook it is a question of merely slowing the rate of growth, rather than seeing a major change to the pattern of demand.

The Middle East producers, traditionally amongst the leading suppliers to growing Asian markets, cannot alone meet the growth in Asia’s crude import requirement which will rise from 21 mb/d in 2016 to 25 mb/d in 2022 due to growth in demand and the decline in regional production.

Summary:

More investment is needed in oil production capacity to avoid the risk of a sharp increase in oil prices towards the end of our outlook period. The oil market today seems remarkably sanguine about this issue, but this feeling might not persist for too long before the realisation dawns that unwelcome price pressures might lie ahead[/I]

Full report here: http://www.iea.org/Textbase/npsum/oil2017MRSsum.pdf

[anon46773462]

Regarding the above post concerning the latest IEA 5-year forecast for oil 2017-2022, here is the IEA’s description of who they are:

INTERNATIONAL ENERGY AGENCY

The International Energy Agency (IEA), an autonomous agency, was established in November 1974.

Its primary mandate was – and is – two-fold:

• to promote energy security amongst its member countries through collective response to physical disruptions in oil supply

• to provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 29 member countries and beyond.

The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives:

• Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions.

• Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change.

• Improve transparency of international markets through collection and analysis of energy data.

• Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies.

• Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders.

International Energy Agency

Signature of the Agreement Establishing the IEA, 18 November 1974. (Photograph: OECD)

[anon46773462]

Not such a quiet day after all…

Here was a nice ribbon cross on the 5m chart (right hand side) that took price back below the 5m band. This combined with a failure to hold above the Daily 200ma (shown as red dot-dash on the left hand side 1H chart) and prices fallng from the top of the negative 1H band created a good risk/reward sell which paid off unexpectedly well.

I wish I could say that I caught the best of this move, but in fact I missed the first part totally!! I was not expecting much action today (and I am still not quite sure what prompted this fall, although there are reports concerning significant US shale oil production increases in the immediate future) and was not sitting by my screen watching paint dry all morning.

My näive understanding did not see anything dramatic in the March OPEC report released today to catalyse the move, but I guess all will be revealed soon enough!

This situation is the other side of the position v. day trader issue! A day trader is in the market only briefly and usually can avoid major disasters such as Black Swans, but they also miss profits from such sudden moves by not already being in the market before they occur. Each trader has to decide which risk/reward scenario suits them best. Personally, I prefer to be sad at missing an opportunity rather than sad from losing the fruits of even years of work on a single disaster like with Brexit or CHF.

[anon46773462]

Bloomberg:

"Oil declined after Saudi Arabia told OPEC it raised production back above 10 million barrels a day in February, reversing about a third of the cuts it made the previous month.

Futures*tumbled 1.5 percent in New York, reversing earlier gains. The kingdom, which had curbed supplies more than it needed in January as part of a deal to help re-balance world markets and reduce a global glut, told OPEC it boosted production by 263,300 barrels a day last month, a figure that jarred with the group’s own estimate that Saudi output fell further. Russia, Iraq and the United Arab Emirates are yet to deliver all the cuts they promised."

[anon46773462]

There’s been a lot of issues recently affecting Crude Oil and there is certainly no shortage of volatility at the moment.

Tomorrow is the weekly EIA inventories release and this is maybe the hottest issue at the moment. I.e. are the OPEC supply cuts effective or are record US inventories and rapidly increasing production countering the impact of the cuts. As we approach the release data here are some of the key current issues:

The latest EIA Drilling Productivity Report claims that US shale oil production will surge in April with an increased output of 109,000 bpd ( already a big increase from March). These significant and ongoing increases add to the downward supply pressures on prices alongside the persistent record gains in inventory levels.

In the face of the above increase in production, can OPEC and non-OPEC producers show any positive evidence that production cuts will underpin prices and will compliance amongst members continue. In addition, how will the same producers react to the proposal that the cuts are extended beyond the June deadline. Kuwait has apparently already endorsed a six-month extension of the deal but Russia’s Rosneft believes the rapid increase in U.S. shale oil production could undermine the willingness of other members to extend OPEC’s deal to the end of the year due to fears of losing market share and reduced revenues. Failure to extend could lead to a price war to retain market share.

Apparently hedge funds and other money managers and investors have been heavily liquidating long positions as a result of the increasing US inventories and fears of further large gains.

US and other oil companies have successfully and significantly reduced their breakeven prices for opening new production sites, which means production is still profitable even with prices declining to $30 per barrel - which lowers the threshold where production sites are shut down or projects postponed, thus supporting continuing supply levels.

On the other hand, giving some support to prices is the reduction in Libyan output as a result of the violence and unrest. In addition, Nigeria’s current exemption status from the OPEC production cuts may be withdrawn if the deal is extended beyond June, also adding to the overall supply reductions.

Then there is the Fed action on interest rates which are expected to increase by 25 basis points this week. But then the markets will also be considering how many more increases may be coming in 2017.

[anon46773462]

All my TFs from 4H downwards are neutral or, rather, “on pause” in view of the abundant bearish commentaries concerning oil prices (price is still sitting just under the Daily 200 SMA, which stands at 48.65). The Daily chart is naturally still heavily bearish due to recent significant downwards movements. I would need to see prices drop below 48.25 on USOil CFD’s before my short-term 1H=>5m charts will start to signal a new move.

Today we have the weekly EIA Crude Oil stockpiles report (the change in the number of barrels in stock of crude oil and its derivates), released by the Energy Information Administration. It seems the anticipated number is around 3.2mill compared with last week’s 8.2mill. Any significant increase above that will cause a reaction as it will be seen as further undermining the OPEC-led group’s attempt to underpin price levels by cuts in production… And a few hours later the Fed interest rate decision.

I am anticipating another day of up/down volatility as parties adjust their position prior to these releases.

[anon46773462]

As a (former) forex trader, CFD’s were a new phenomena for me and when I swapped to oil trading I had to do some reading to find out what they are all about. I guess for most people these are nothing new but for me there were a number of issues that were indeed different and I admit I was a bit nervous of them at first.

A CFD (contract for difference) is a contract between the broker and myself. The contract stipulates that the party who gains will pay to the other party the difference between the current value of the asset and its value at contract time. In other words a CFD is a financial derivative permitting a trader to take positions reflecting the underlying financial instrument without actually taking ownership of the asset itself.

This means that Crude Oil CFD’s are contracts with the broker as the counterparty. The pricing is based on the underlying assets, which in the case of Oil CFD’s are the exchange-traded front month futures contracts traded (primarily) on NYMEX (WTI) and ICE Futures Europe (Brent Crude).

The biggest benefit of CFD’s, especially during early trading stages, is that the CFD contract is much smaller than the underlying futures contract. For example, the UKOil CFD has a pip size of only 10 cents compared with $10 for one futures contract. i.e. 100 UKOil CFD’s are currently equivalent to one Brent Crude (ICE) Future. This is a big benefit when starting out trading oil because intraday movements can be very volatile and very rapid meaning that close stops are extremely vulnerable. But with the smaller exposure offered by CFD’s it is possible to manage position size and risk with much more flexibility.

At least with the Crude Oil CFD’s that I trade there are no commissions but the spread of 5 pips is quite painful, especially with short term trades. The nature of CFD’s also means that the pricing is the broker’s own and, although linked to the futures price is a theoretical risk. However, spreads are fixed and that dismisses the risk of “stop-hunting” via widening of the spread. I have two independent mobile apps that give a fast price feed and I regularly compare the screen prices with the apps and so far I have not noticed any discrepancies at all.

CFD’s trade from mon to fri, as with forex, but have a [U]daily [/U]break of 1-3 hours depending on the contract, usually starting at 21.00 GMT).

The other main difference is that Oil CFD’s follow the front month futures contract and, although there is no delivery option or risk, there is a monthly settlement day on which all open CFD’s are automatically closed and settled. The trader, if he wishes, has to then reset the positions with the new front month price. The broker should have a page detailing these dates. For example, any current USOil CFDs open on 20.3. will be closed and settled automatically by the broker at 21:00 GMT when the market starts the daily break period.

I am sure there are other points as well but that is all that comes to mind right now!

PS: Markets steady and waiting…

[anon46773462]

Iraq shares its borders with six other countries including three other OPEC Member Countries – the Islamic Republic of Iran, Kuwait and Saudi Arabia - as well as Turkey, Syria and Jordan. It has a population of almost 37 million.

Iraqi oil reserves are considered the world’s fifth largest, with 143 billion barrels. Only a small fraction of its known resources are actually currently being exploited and it has vast proven reserves still untouched. Iraq is producing around 3.5 million bpd.

Iraq is a founder member of OPEC and is its second largest producer behind Saudi Arabia. However, many years of war, domestic political disputes, insufficient investments, and low oil prices has placed a strain on Iraq’s oil sector.

Since the 2003 U.S. invasion and the toppling of Saddam Hussein, Iraq has effectively been split into two rival states: the national authority in Baghdad and the Kurdistan Regional Government. How the revenues from Kurdish oil are spent has been an on-going major point of contention between them. Political disputes over how to best exploit the county’s oil resources are continuing to disrupt the rate of oil production. A significant proportion of these resources are actually located in Kurdish areas.

Low oil prices in recent years and rising imports have also been straining the Central Bank of Iraq and its oil revenues. So much so that investments towards increasing oil production are often insufficient.

Alongside the adverse impact of low oil prices, Iraq finances have also suffered from the need to finance security measures. The takeover of Mosul by Islamic State militants in June 2014 has fueled defence spending ever since. But in addition to the increased security costs, investment for oil is also being affected by the mass exodus of refugees and internally displaced peoples. This includes skilled oil workers critical to maintaining Iraqi oil export levels.

Iraq is one of the (few) countries reported to be currently failing to comply with the OPEC-led production cuts, but is apparently intending to catch up during the remaining months of the agreement.

A key issue regarding the future of Iraq’s oil production is what happens once the so-called IS is ousted from Iraq. The Kurds desire greater economic and political independence from Baghdad, but the Iraq central government desperately needs oil to rebuild the nation. Since Iraq is almost totally dependent on oil revenues to maintain its economy and state finances, any further substantial and prolonged weakness in oil prices will only further aggravate the situation.

Supertankers filling at the Al Başrah Oil Terminal. The leftmost ship has just started filling; when full, the red portion of the hull will be below the waterline like the ship on the right.

[WinPsych]

Hey Manxx,

You know :58: “[I]you have to learn to be good oil trading to make much profits[/I]…” hahaha sorry, couldn’t resist.

Interesting move, will stop by once in a while and learn something totally new…just for the sake of knowledge of course.

[anon46773462]

Hey Manxx,

You know :58: “[I]you have to learn to be good oil trading to make much profits[/I]…” hahaha sorry, couldn’t resist.

Interesting move, will stop by once in a while and learn something totally new…just for the sake of knowledge of course.

Hi WinPsych!
Good to hear from you!

Yep this is my “new suit” must be a boiler suit though! For me, I must have a passion for my underlying product, and I just suddenly realised that the Euro and the USD just no longer did it for me and I was just looking at lines and numbers. I was bored with just watching for Central Bank and NFP days, etc. Then I was just reading some news stuff that included the OPEC thingy and that was it - it took me right back to my schooldays when my destiny was intended to be either chemical engineering in refineries or marine engineering on tankers - instead I ended up in banking!

So I am returning to the passion of my youth and soaking up the oil by trading it instead of working with it!

Please do stop by whenever…you’re always welcome!