Crude Oil and oil markets

Global Markets Commodities Oil and Gold
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We have a seemingly curious situation regarding the outlook for oil prices over the near term! :slight_smile:

Supporting the market, we have OPEC and the 11 other non-OPEC producer countries continuing their reduced production levels in order to stabilize prices - and will possibly be extending these cuts to the end of the year. In addition, we also have a number of analysts predicting that increasing demand will remove the current global oil supply glut and support prices around the $60 a barrel level. But if prices do start to rise significantly then that will immediately place temptation in the way of these OPEC and NOPEC countries to start increasing their production to avoid losing market share and to increase badly needed revenues.

But we also have US producers increasing production and drill rigs and thus countering to some extent the OPEC reductions and also reducing US oil imports from e.g. Saudi Arabia. However, whilst the US administration is committed to energy policies that will maintain lower prices and reduce oil imports, the US oil industry itself will not wish to see prices falling too low and damaging their own revenues.

Therefore, on balance, one could start to see evidence that prices may well be near their lows for the time being as we approach the summer increase in demand, and maybe see a gradual increase towards the year-end.

I was therefore curiously surprised to read an article this weekend reporting that Russia has now planned its federal spending budget for 2017-2019 based on an oil price of $40 a barrel continuing throughout this 2-year period…

My charts finished last week still with a negative trend on the daily - requiring a price rise now through 49.45 to cancel it (Turbo’s 5-day method). But there was a clearly neutral/positive end-week close on the one hour and shorter term charts.

There is also an interesting situation on the long-term daily chart going back to the middle of last year:

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My own thoughts are that we could possibly now be entering a consolidation period, which will see strong oscillations between broad extremes from now until the OPEC decision in May concerning extending their production cuts.

The question is which goes first, the 5-day 49.45 (high from 21.3, which if not touched on Monday, will drop anyway on Tuesday to 48.25,the high from 23.3.) - or that daily support line, which could lead to a substantial reactive fall…

Going into the new week I am still too wary to buy until and unless the daily turns upwards and so I continue to watch the 1H chart for a downturn…

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Manxx, the JMMC met today in Kuwait - their communique could affect price tomorrow, worth being aware of it although maybe the market will just shrug it off.

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Thanks, yes, Peterma, I have been watching that. So far there has only been talk of them analysing the degree of compliance so far from partners, especially the non-OPECs like Russia. I somehow doubt that they will end by saying anything that could be construed as negative for prices given that their interest is entirely the opposite - but then there is always the contrarian view - if they say positive things that dont have market credibility then it is negative! :smiley:

It still seems that the problem is the increase in US production cancelling out the deliberate shortfall from OPEC/NOPEC. They have said that OPEC’s compliance rate was 106% in February and 64% for the non-OPEC nations including Russia - but that is not having any impact so far on prices and it all feels very heavy…but there are still plenty of long-term interests anticipating an eventual rise in prices and are buying. But on the other hand, I read that there are very high long positions at present and if these start to liquidate then we could easily see a fall towards $40 in a very short time. That’s why I am still only looking for sell opportunities …and thankfully can rely on charts (and blame them!) instead of having to form a fundamental “smart-view”! :smiley:

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Yeah, I agree on the smart view, having said that sometimes it helps when you see price move and you can figure the reason.

I’m not a fan of old stuff except when I can learn from it, so here is an old piece, with some good info.

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Thanks! I was just off to bed (I’m 2 hours ahead of the UK) so I’ll take it with me…:smiley:

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Sleep well, the Russians have said they’ll just wait and see (that’s typical opec/oil talk) so the JMMC meet will be disregarded.

No pulling of the sells around 48.00 for now.

67

Early prices down from Friday’s close in Far East. Overnight hourly chart at this point lining up with the negative daily.

Everyone seems to be currently concentrating on the level of inventories in the US and so this week’s key data releases will be the API crude stocks on Tues and the EIA weekly on Weds as well as the rigs count on Fri.

There is undoubtedly a significant build in US crude stocks but, at the same time, there are some mitigating circumstances that may well start to change that situation in the coming weeks:

1 - recent stock increases include arrivals from Middle East from before the start of the reduction agreement and will now start to tails off.

2 - seasonal factors lead to temporary stock increases at this time of year as US refineries schedule maintenance work prior to production starts for the summer season.

Most commentaries seems to point to a broad range of $60 -$40 a barrel in the next few years.

As previously mentioned, as prices trend lower it begins to affect the profitability of production sites and eventually leads to plant shutdowns. With that in mind, I found an interesting graphic of the production cost levels for various countries:


When considering trading with multiple timeframes in Crude Oil it seems that the normal concept of, say, Daily/4H or 4H/1H changes to a long-term TF of 2-5 years and a short-term TF of 2-5 mins! :smiley:

The changes in the actual fundamentals of supply can take years before new production developments actually come on stream, and even longer if one includes the exploration stage. And the demand fundamentals can also take years as the economic cycles in various countries and regions change.

On the other hand, the speculative and hedging interests in the oil market are absolutely huge and from many sources. This means the instruments and the liquidity and the size and the motivation are all present and can create reactions to new insights and situation changes within hours and minutes…stay aware! :slight_smile:

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Well that was a nice “early bird” start to a new week! I never usually trade on Mon mornings but that cross on the 1H was just too tempting… and I closed it after writing the above post…now for that breakfast coffee! :slight_smile:

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I probably closed it far too early but it was approaching previous lows and, afterall, it is early… :slight_smile:

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Hi, Peterma - thanks for that article! Here are some highlights from it that I thought were interesting and currently relevant.

On the time lag in long-term fundamental changes:

[I]“Taking a longer-term perspective, the oil price drop can be explained by previous large investments and technological innovations that caused oil production to surge at a time of weakening growth. Technological breakthroughs sparked the shale oil revolution in the United States, and several years of high oil prices, against a backdrop of strong growth in emerging market economies, encouraged large-scale investment in oil. Owing to a [B]considerable lag between investment and production[/B], the resulting supply entered the market when demand for oil was no longer increasing.”
[/I]
On the impact of greater cost efficiency on increasing production in US shale oil:

[I]The arrival of US shale oil and unconventional oil exploration more generally is a [B]structural supply-side shift which might cause oil prices to stay lower for longer[/B].[/I]

On current bearish v. bullish factors:

[I]"The [B]downside[/B] risks to oil prices are:

  • on the supply side related to further increases in global oil production owing to a stronger than expected return of Iranian oil and the continued resilience of non-OPEC production, in particular US shale oil.
  • on the demand side, a stronger than expected slowdown in emerging economies might affect oil demand negatively.
    [/I]

[I]The main[B] upside[/B] risks are:

  • stronger than expected cutbacks in oil production owing to geopolitical tensions
  • and larger supply fall-backs if oil prices remain persistently low."
    [/I]

On balance I would still consider the downside factors as more dominant, realistic and current…

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Digesting the thread and watching the charts. Manxx, you mentioned your chart indicators as “MA’s, some as ribbons, and a MACD with settings 50,60,4 to give a longer term signal.” I was looking to replicate what you have as a starting point (if you didn’t mind), but my experience with indicators is very limited. Just MA’s mainly.

The fundamentals are interesting - reading the summary above and being a total newbie myself (on oil), I’d be hard pressed to make a prediction. I read somewhere that fuel oil stock building started in April for the following winter and that consumer demand increased in the Summer as people used their cars more for travelling. Quite what effect that may have on pricing (if any), and the bigger picture I don’t know. That’s probably the sum total of my “knowledge”, apart from what you’ve provided here.

Noticed this earlier: Hurricane makes ‘largest undeveloped’ oil find in UK waters - BBC News
New oil field discovered in the UK - 1 billion barrels - but won’t be in production until 2019

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Hi Jazzman!
I have absorbed the same information, yes. Apparently, crude stocks rise whilst some refineries shut down for maintenance before starting to produce the summer gasoline, which then draws on the crude stocks.

This effect has been somewhat diluted by the extensive shift to low-consumption vehicles, and will be further reduced if the summers continue to be abnormally warm.

But these are fairly routine events and well anticipated in the markets.

If you have not traded oil before then be careful (demo, maybe?) because moves can be swift and contrary. One has to leave plenty of breathing space for spiky movements. This is readily apparent if you look at, for example, an hourly chart and note the length of the candle wicks relative to the bodies.

How are you looking to trade this? I guess with CFD’s? Futures are an expensive way to learn but nice once we get to that level of confidence! :smiley: CFD’s though usually have a nasty spread and we must take that into account when judging the position of stops and targets - also how much to look for to make the trade risk worth while, e.g. not much point in looking for a 10-pip move if you have to give 5 pips to the broker…

I’ll come back about the charting, in the meantime here are some interesting thought that I found today…

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The morning presented two good down moves, but now the hourly has turned neutral and I am done for today, unless something significant happens…

I am more and more inclined to think that we are entering a period of volatile, whippy trading as we approach price levels that many seem to consider close to realistic lows. So I am only looking for quick trades on a strictly intraday basis.

In the meantime…:

[I][U]OPEC has matured and is no longer the same cartel that it used to be[/U][/I] - at least, according to an article in FUTURES magazine! The old style of cheating and bickering is now replaced with a sense of cooperation and organisation that, after the weekend compliance meeting in Kuwait, is now very likely to agree to an effective extension to their period of output reductions.

Compliance with the current cuts is now at 94% and even Russia is now in line with its targets. And, apparently, most of OPEC and non-OPEC nations are now supportive of a further 6-month extension.
Whilst the current production cuts have not so far resulted in underpinning prices as intended, it is incredibly successful from the compliance point of view. The only reason why prices were not supported was the record U.S. inventories that were countering a large portion of the cuts in supply. So we can assume any extension will be equally well complied with by all parties.

However, if the cuts are extended during the second half of this year we may well see a very different result. US inventories are soon expected to start showing draws instead of builds as the summer approaches and there have already been declines in inventories in other parts of the globe including the Far East.

If we start to see US drawdowns, as well as increased demand on a global basis, coincident with OPEC/NOPEC cuts, then the overall scenario might suddenly be looking in the other direction…

Interesting!

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The current OPEC compliance is unusual - I remember well the “cheating and bickering” - I wonder how long it will last?

BTW, I’ll be demoing (with CFDs) but only briefly whilst observing market behavior, looking at the indicators and assessing the reliability of signals. I do like to trade with a funded account (with the minimum financial risk possible of course, don’t we all?) because I just can’t not be aware that demo trading ‘isn’t real’, and discipline slips because ‘it doesn’t matter’ and because ‘I’m experimenting’. It’s also a bit like paddling in your wellies.

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The JMMC is the Joint OPEC/Non-OPEC Ministerial Monitoring Committee. It was established following OPEC’s 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the Joint OPEC/Non-OPEC Ministerial Meeting, held on 10 December 2016.

The JMMC met for the first time in Vienna on January 22. And the meeting in Kuwait City last weekend was only its second meeting.

The JMMC also involves a Joint Technical sub-Committee (JTC) that provides the research and data for the JMMC.

If the current level of compliance is anything to go by, it seems to have some credibility! They just might be saying “watch this space…”


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Following on from the earlier post, the hourly chart shows where the price went neutral last night as it moved above the ribbons (which I now affectionately call the “pipelines” :smiley: ). The MACD also crossed to declare the day’s down side over.

Indeed, overnight the market has edged higher and WTI now back around $48 area.

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I guess the only significant factor is what the market didn’t do yesterday in its thin trading. If we look again at that daily channel (I prefer to draw lines connecting the candle bodies rather than the wicks, but that’s just a personal preference, I am not a great channel person anyway), then we see that the hourly chart penetrated the support line considerably but the day’s close was back above it. To me, that suggests a weakening of the selling pressures around this level, especially since we are still clearly below the daily 200MA which is apparently widely watched.

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Seems to me that the whole world (at least us oily rags in it) are watching little else than the US inventories:

  • Later today we have the API’s Weekly Statistical Bulletin (WSB), covering the total U.S. and regional data relating to refinery operations and the production of the four major petroleum products: motor gasoline, kerosene jet fuel, distillate, and residual fuel oil.

  • Tomorrow, we have the EIA’s weekly report of Crude Oil stockpiles, measuring the change in the number of barrels in stock of crude oil and its derivates.

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Iran (now the Islamic Republic of Iran) is one of the world’s oldest continuous major civilizations, with a population of over 78 million. Oil was first discovered in Iran in 1908 leading to the formation of the London-based Anglo-Persian Oil Company.

Later, in the 1950’s, the National Iranian Oil Company (NIOC) was formed. After the Islamic Revolution of 1978–79, the NIOC took control of Iran’s petroleum industry and all exploration, production, sale, and export of oil is administered by the Ministry of Petroleum.

Iran is one of the founder members of OPEC. Its proven oil reserves are approximately 158 billion barrels, which is roughly 10% of the world’s total proven petroleum reserves and about 13 percent of OPEC’s, placing it in third position behind Venezuela and Saudi Arabia. When taken together with its holding of 15% of the world’s gas reserves, Iran is considered an energy superpower.

Iran produces about 3 million bpd, of which around 1 million bpd are exported. Iranian production peaked at around 6 million barrels per day in 1974, but it has been unable to reach that level since the 1979 Iranian Revolution due to a combination of political unrest, war with Iraq, limited investment, and US sanctions. The industry was disrupted by the international embargo from July 2012 through January 2016.

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Oil proceeds represent about 18% of GDP. The oil and gas sector account for about 60 percent of total government revenues and 80% of the annual value of exports and foreign currency earnings.

Interestingly, Iran manufactures 60–70% of its industrial equipment domestically, including various turbines, pumps, catalysts, refineries, oil tankers, drilling rigs, offshore platforms, towers, pipes, and exploration instruments.


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Petrochemical Complexes in Asaluyeh

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Follow up on this morning’s charts.

Already last night, the charts were showing an end to the current selling pressures ahead of the latest inventory releases today and tomorrow. That trend has continued today with a slow but steady move up to the daily 200 MA. without any kink in the ribbons or the MACD at all.

Kind of gives a feeling of short covering rather than new longs. I have not traded at all today even though a buy would have brought a good 50-tick move. But it did build a lot more trust into this chart set-up :slight_smile:

Now that the price is caught in the very tight range between the 200 MA above it and the channel base below it, we can expect a good move once one or other breaks on the day’s close - probably as a result of one or other (or both) of the inventories data releases.

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MOSCOW (Reuters) - Russia and Iran have pledged to continue efforts to rein in oil production and stabilize markets, the presidents of both countries said in a joint statement on Tuesday.

“Russia and Iran will continue cooperation in this sphere (in oil output cuts) in order to stabilize the global energy market and ensure stable economic growth,” the statement from Russian President Vladimir Putin and Iranian counterpart Hassan Rouhani said.

They two presidents met in the Kremlin.

Earlier on Tuesday Iranian Oil Minister Bijan Zanganeh told reporters in Moscow that a global deal is likely to be extended, but time was needed to discuss the subject thoroughly.

“It seems that most of the OPEC and non-OPEC (countries) are going to extend the agreement, but time is needed to evaluate the situation and to have face-to-face meetings and discussions with others,” Zanganeh said.

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Do you accept it as factual that oil is a fossil fuel, Manxx, or do you have any time for the alternative views of Thomas Gold and others?

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Interesting topic, Lexy, thanks!
I had not heard of these abiogenic theories before and I will read more about them and reply later. But from a brief glance, it would seem that there is no requirement to accept as factual or otherwise either argument concerning the origin of hydrocarbons [U]as long as they only relate to the historic formation[/U] of oil and gas deposits - it is purely a matter of academic interest.

On the other hand, if these alternative theories may also have a [U]current [/U]relevance then it would be a different matter entirely. E.g. if they affected whether and how synthetic fuels could be produced. Also, in a more futuristic sense, whether one could anticipated a certainty of oil and gas on other planets, then it would also be [I]extremely [/I]interesting - maybe we should already get in first and stake our claims on the moon surface…:slight_smile: