Crude Oil and oil markets

Global Markets Commodities Oil and Gold
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The American Petroleum Institute (API) US crude oil inventories release revealed a build of 1.91 mill barrels, which was very close to the predicted 2mill barrels. Prices were therefore little affected and have remained at the same levels in early trading this morning. One interesting observation from API data is that stock level increases are occuring during a period of increasing petroleum deliveries indicating that demand is also increasing simultaneously with the stock builds.

Here is an API chart showing Crude Oil stock accumulations this year

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The daily chart is still sitting squeezed between the 200MA above it and the channel baseline below. The hourly chart is still postive/neutral.

Daily + ribbon

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Hourly

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The market will probably now wait for the EIA Crude Oil Inventories to be released later today. If there is significant deviation from the expected 1.183 mill barrels then we will have the impetus to push decisively one way or the other.

In addition to the Russian/Iran comments regarding the likelihood of an extension to the OPEC deal, yesterday also saw some other interesting events:

  • In Libya, the continuing internal civil struggles caused a sudden drop in oil supplies from various terminals, reducing production figures by 250,000 bpd. This added a further upward poke to price movements.

  • Perhaps the most interesting development was President Donald Trump’s executive order on energy independence which reverses many significant directives designed to protect people and the environment. This has produced intense responses both for and against and I will post something about this later today…

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BTW…

I should also add that the short oil trade using the Turbo “high 5” method closed out at the high from 23.3. at 48.45. The trade started on 23.2. at a price of 52.52 producing a handsome reward of +407 ticks. :slight_smile:

Well done Turbo… :slight_smile:

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Every coin has two sides and this executive order seems to have two very extreme sides, both of which will have far-reaching implications on energy and the environment:

American Petroleum Institute

The API President and CEO Jack Gerard called President Trump’s “Energy Independence” executive order an important step forward in restoring common sense regulations that are needed to advance the U.S. energy renaissance.

“Today’s action by President Trump is an important step toward increasing American competitiveness and recognizing that our industry is part of the solution to advancing U.S. economic and national security goals,” said Gerard. “Smart, common sense and science-based guidance and regulations will help our nation’s energy renaissance continue to provide benefits for American consumers, workers and the environment.”

“We look forward to working with the Trump administration and Congress on forward-looking energy policies that will help ensure the United States continues leading the world in the production and refining of oil and natural gas, and in the reduction of carbon emissions."

API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy.

API | API welcomes the Trump administration’s executive order on Energy Independence

National Parks Conservation Association

Mark Wenzler Senior Vice President of Conservation Programs writes:

President Donald Trump’s new executive order on energy independence ignores one of the worst threats facing our nation and puts Americans, our communities and our beloved public lands in jeopardy.

The sweeping executive order, released today, aims to reverse decades of work that protects people and the environment, including our national parks, from the perils of climate change. Masked as a directive to reduce dependence on energy from other countries, this order directs the Environmental Protection Agency (EPA) and other agencies to rewrite or eliminate critical safeguards for our air, water and climate. Under this new order:

• The Department of the Interior must review and may repeal safety and enforcement standards, known as “9B rules,” that protect more than 40 national parks from the impacts of oil and gas drilling inside their boundaries, including Everglades, Grand Teton and Mesa Verde.
• The EPA must withdraw and rewrite rules that mandate power plants limit carbon dioxide
• The attorney general must stop defending certain measures that would reduce coal plant pollution
• Various agencies may no longer consider the effects of climate change when deciding whether to issue permits for fossil fuel production
• The EPA and Bureau of Land Management (BLM) must put on hold standards for reducing methane pollution from oil and gas operations

The consequences of the executive order are real for our national parks. Already, climate change is dramatically affecting the places Americans cherish, rapidly melting the glaciers at Glacier National Park, driving Joshua trees out of Joshua Tree National Park, and causing sea-level rise that threatens coastal national parks from Acadia to the Everglades.

By reversing sensible policies for reducing climate change, the Trump administration is harming the environment in ways that can affect our communities for generations.

The executive order directs EPA and other agencies to review the policies and practices that could impede the expansion or production of fossil fuel-based energy and report back to the administration. This tasks the agencies responsible for protecting our environment and parks with creating a sweeping account of anything that might restrict or slow down fossil fuel development. The executive order does not give any consideration to the economic, public health and environmental benefits of reducing greenhouse gas pollution or the value of preserving public lands.

Trump’s executive action dramatically halts American progress to combat climate change in ways that can wreak havoc on our people and harm our national parks for generations to come. This reckless action ignores public opinion, science and the needs of communities, and may ultimately leave our children and grandchildren with a more volatile and dangerous future.

We have a responsibility to protect each other and our invaluable natural and cultural heritage. This executive order neglects the real effects climate change has on our nation and tosses the responsibility to deal with the consequences onto the shoulders of future generations.

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Sunset over St. Mary Lake at Glacier National Park. The namesake glaciers at this park are rapidly melting as a result of climate change. In 1850, the region had 150 glaciers. There are now just 25 left. Photo © Kan1234/Dreamstime.

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Jazzman, I tried to send you a PM about this, but you do not have sufficient posts yet.

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The EIA release revealed:

[I]- Crude oil inventories rose 0.9 million barrels in the March 24 week to 534.0 million.

  • But product inventories declined again and more substantially, with gasoline down 3.7 million barrels to 239.7 million, 1.2 percent below the year ago level, and distillates down 2.5 million barrels to 152.9 million, for a year-on-year decrease of 5.1 percent.

  • Crude oil imports averaged 8.2 million barrels per day, down by 83,000 barrels per day from the prior week. Over the last 4 weeks, imports averaged over 8.0 million barrels per day, 0.7 percent more than in the same period last year.

  • Refineries operated at 89.3 percent of their operable capacity, up 1.9 percentage points from the previous week. Production also increased, averaging over 10.0 million barrels per day for gasoline and 4.9 million barrels per day for distillates.

  • On the demand side, total products supplied over the last 4 weeks averaged 19.6 million barrels per day, up 0.7 percent from the same period last year.
    [/I]

The positive note in the market since last night has continued but the reaction to the slightly lower than expected build in crude oil stocks has been fairly muted.

The increase in crude inventories was offset by reductions in product inventories. Production increased but so did demand.

On balance? I don’t really see in these figures anything to suggest a significant move one way or the other! We still seem to be fulfilling the anticipated oscillating in a broad range. I am interested to see if we close the day above that daily 200MA. I have a resistance level around 49.60 but I am still cautious of the upside potential right now, especially as we approach some hourly highs from March 16th and 23rd… but oil seems to have an ability to continue in the same direction for long periods even when the move is slow. Lets see what the daily looks like tomorrow!.


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Prices held their gains overnight following the EIA release yesterday and established their hold above the daily 200 MA. The short-term resistance around 49.60 held overnight but is typically seeing some negation already this morning.

The hourly is still positive and only showed a brief dip into the (green) mantle prior to the release yesterday, which did nothing to cancel the underlying bullish tone at that time.

The 15m is also still holding a positive position with its (grey) mantle above the 1H (green) mantle. And I will keep a positive view on price until this turns down.

But the daily, whilst showing signs of a near-term upward turn (bounce off the channel baseline, close over the 200MA, and crossover of the ribbon), still suggests the upside is limited whilst trading below the (green) mantle. I would expect to see considerable resistance appearing as (or if) we approach the $50 level. And any spikes above that could maybe extend to 50.20-50.40 region.

Having only started trading oil seriously this month, I have realised that nearly 100% of my trades have so far been sells (rather obviously!) and I wonder whether that is causing a psychological reluctance to buy anything even when the charts (correctly) have shown a rise in price…or maybe it is just the natural extreme caution with handling something new! :slight_smile: It has been a positive month and I would like to see it end that way.

HOURLY

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15M

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DAILY

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I read an interesting article this morning about DUCs no, not the 3 DUC(K)s! DUCs are Drilled but UnCompleted wells. There has been an increase over some years now, since the low point in oil prices, in the number of drilled shale oil wells in the WTI area that have been left idle but are ready to be brought into use at very short notice.

Two principal reasons for this are that 1) since their output is finite, there is no sense in selling oil at low prices when the price will rise later, and 2) land leases are relatively short-term and require drilling activity (but not necessarily production) in order to qualify for rollover renewals upon expiry. Since acreage prices are high it makes sense to drill even though there is no intention to produce immediately.

However, this means there is potential for a rapid increase in production as soon as prices reach viable levels. The article suggests this could be as much as 300,000 bpd potential additional supply overhanging the market.

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Whilst actual positions may be strictly based on the technical picture from the charts, I do think it wise to keep an interest in what is actually happening in one’s market in addition to just watching the price movement and the lines.

It gives a broader perspective on why the charts look as they do, increased assurance to take (and maybe hold) positions, and creates a greater general interest in the subject matter itself.

Whilst I have been reluctant at present to take long positions in oil after the recent falls, in spite of the charts confirming the rise, there are growing reasonings being stated that justify going long. For example:

  • Futures net longs have been largely liquidated (relieving downward pressures)

  • OPEC/NOPEC’s strong compliance with agreed production cuts shows a strong commitment to its eventual effectiveness in supporting prices

  • Growing belief that the current production cuts will be extended to the end of the year

  • The impact of OPEC cuts only just starting to appear in lower inventories (typical 2-3 month lag)

  • Exaggerated concentration on growth in US oil inventories which is not being reflected in other regions

  • The impact of increased refinery activity after seasonal maintenance periods resulting in draws on inventory levels

  • Anticipated increasing demands globally and strong US economy

In addition to these factors it occurs to me that US oil producers do not over-produce simply to fill up the storage facilities, and they certainly do not over-produce in order to pull down prices! If they expected a prolonged period of weak prices then they would be shutting down facilities, not increasing. But the number of new rigs appearing is increasing significantly and there is already even pressure to find sufficient service companies to operate them.

So if we combine this current US situation with the Trump administration energy goals then we could see:

  • a healthy, active US energy sector based on good returns and reasonable consumer price levels

  • a healthy level of employment in all US energy sectors

  • a diversion of the production exceeding domestic demand towards reducing imports and even raising exports.

  • the reduced US imports of oil from, e.g. OPEC being diverted to other consumers such as the Far East rather than depressing prices.

So, on balance, there is a sound scenario for anticipating an upwards move from the current price levels. However, this is not to say that that we should expect a rampant bull market instead. Maybe the matured and cooperative OPEC style is more likely to result in a stable and healthy level of inventories and a price level suitably positioned between the interest of suppliers and consumers.

However, with the US, Russia, OPEC, African producers, North Sea and many other producer countries, all with their own geopolitical and economic considerations, I wouldn’t expect a stable condition to last very long…

…which brings us right back to the start. Just put all the above considerations into the melting pot and then watch what spills out onto your charts and just go with the flow…:slight_smile:

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…and as if to underline my above post,… right on queue, there she blew, my first buy trade…

Ribbon cross on Daily, positive Hourly and then a cross on the 15m + MACD…

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Well seems we didn’t have much trouble getting up to and through that WTI 50$ level! :slight_smile: And now we are spending some time in this 50.20-50.40 range.

Comments concerning the factors prompting the sudden turnaround include Kuwait comments on OPEC continuing their production cuts and significant cutbacks in Libyan supplies due to the civil unrest there causing a virtual shutdown of a major oilfield and no indication how long this will last for.

But the bullish fundamentals were, in my opinion, already forming and, as usual, it only takes a specific event for the market to hook onto and unleash the pressures.

Right now it looks like we will see further gains from here, but there are probably likely to be better levels to buy into than at present.

Tomorrow is the last trading day for the month and a Friday. I don’t know what impact that will have on london trading, but we have the latest US rigs count data at 18.00 GMT which may cause some profit -taking ahead of the weekend if the data exceeds expectations.

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Oil storage hub - Hamburg

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Not much new this morning. Prices stayed roughly the same overnight, which means charts are unchanged but without any clear short term direction right now for the day from this level. I don’t have any resistance above the market until we start to intrude into the 50.70 to 51.40 range. Similarly, I would be interested in support around 49.50 to 49.70 but below that I would start to doubt any further upside potential for now.

I am flat now as from yesterday evening and will not trade today as it is Friday and the end of my first month in Crude.

Although we follow the benchmark prices of (mainly) WTI and Brent, not all oils are the same nor are all distances from producer to consumer, nor the transportation methods and costs, nor the grades of products refined from crude - and many other factors.

So how does the oil market work? how are individual deals done and prices agreed? This is my project for this weekend together with country profiles on US and Russia.




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Perhaps the biggest difference between a typical Babypips trader and the actual major participants in any market is that we have absolutely no interest in actually taking or making delivery of the underlying asset at all. Whether we are dealing in currencies or commodities, we are primarily only interested in its changing value, not where it comes from or goes to.

Maybe with currencies there really isn’t that much else to take interest in anyway. Currency accounts are opened in banks, and instructions given when and where to send a specified amount. Sometimes it may also require short term borrowing to avoid negative balances while a position is open and thereby also involve interest rate considerations, and credit availability lines also become an issue.

But there again, there[B] are [/B]interesting [I]side [/I]issues such as historical and future development of money, banknote designs, security measures, counterfeiting, money laundering, electronic money, Government and Central Bank fiscal/monetary policies, and so on.

But ultimately, a dollar is a dollar, and a Euro is a Euro, and a pound is a pound, etc.

Commodities are a bit different and their journey from origin to destination rather more varied and complex than just a printing press and a wall cash dispenser. And I’m only just starting to realise how [I]little [/I]I actually know about the oil industry…even how it is priced:

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I have been trying to establish how buyers and sellers of crude actually decide on the price of a specific quantity of a specific crude. These are the main points I have found so far, which I hope is correct! Any comments welcome…!

Crude oil varies greatly in many qualities such as its composition and its viscosity. It can be liquid or even in a semi-solid form mixed with sand and water such as in the Athabasca oil sands in Canada, which is so thick and heavy that it must be heated or diluted before it will flow and often referred to as bitumen. Venezuelan oil sands are more fluid than in Canada and are usually called extra heavy oil. In earlier posts, were mentioned other differences such as sweet and sour oil and specific gravity.

But if there are so many different types and qualities of oil in its crude state, and so many locations across the entire globe, how is oil actually priced?

[B][U]1) Benchmark prices
[/U][/B]
The price of oil from individual suppliers is primarily linked to an appropriate benchmark price. These benchmarks, or markers, have assumed a wide range of applications and are used by:

  • sellers and buyers to price cargoes under long-term contracts or in spot market transactions
  • futures exchanges for the settlement of their financial contracts
  • financial institutions and companies for the settlement of derivative instruments such as swap contracts
  • governments for taxation purposes

Various countries use different benchmarks depending on the export destination. The main benchmarks in use are:

  1. Brent/BFOE (a range of price benchmarks on which 70 percent of international trade in oil is directly or indirectly priced)
  2. WTI (West Texas Intermediate, the main benchmark used for pricing oil imports into the US)
  3. Dubai/Middle East Sour Crude (used in pricing most cargoes from the Gulf to Asia)

These benchmarks fluctuate according to the normal broad influences such as temporary seasonal affects, economic and/оr political issues, global and regional changes in supply and demand, changes in production and distribution technologies, etc. These broad influences are reflected in the trading in these benchmark oil futures, primarily on the NYMEX and ICE exchanges in London and NY. For example the ICE site states:

[I]“Today, over half of the world’s oil futures are traded on our markets. The overall Brent complex acts as a reference price for approximately two thirds of the world’s oil and the ICE Brent futures contract serves as the world’s benchmark for light, sweet crude.”

“The ICE West Texas Intermediate (WTI) Light Sweet Crude Oil Futures Contract offers participants the opportunity to trade one of the world’s most liquid oil commodities in an electronic marketplace. The contract not only brings the benefits of electronic trading a US light sweetcrude maker, but also brings together the world’s three most significant oil benchmarks on a single exchange: Brent, Middle East Sour Crude and WTI.”[/I]

[B][U]2) Individual agreements[/U][/B]

Transactions in the physical delivery of crude oil can be either through the spot (cash) market or through long-term contracts. The spot market is mainly used in single transactions to buy and sell crude oil not covered by long term contractual arrangements. The parties can either agree on the price at the time of agreement, or they can link the pricing of an oil cargo to the time of loading.

Long-term contracts are negotiated bilaterally between buyers and sellers for the delivery of a series of oil shipments over a specified period of time, usually one or two years. They specify among other things, the volumes of crude oil to be delivered, the delivery schedule, and above all the method that should be used in calculating the price of an oil shipment. The contract will also specify how, when, where and on what terms it is to be delivered. Delivery may be, for example, direct to a refinery, or to a crude storage tank or to a shipping terminal.

Contract pricing also takes into account the specific qualities of the particular crude in question. The different qualities and characteristics of various crude oils means that different crudes fetch different prices, and the price of a particular type is usually then set at an agreed discount or premium to the marker or benchmark price. The differentials are adjusted periodically to reflect differences in the quality of crudes as well as the relative demand and supply of the various types of crudes. In other words, oil is sold on the basis of an agreed benchmark price +/- a specific amount.

The pricing method used in most long term purchase contracts is based on so-called formula pricing, which links the price of a cargo to a specific market (spot) price, i.e. the benchmark from which the final prices will be derived. Since there is a significant time lag between the date at which a cargo is bought and the date of arrival at its destination, there is a considerable price risk. Transacting parties share this risk through the pricing formula. For example, agreements are often made for the date of pricing to occur around the delivery date and according to the benchmark price formula at that time +/- the agreed premium/discount.

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Hello Manxx

i have a question. With all these details you are digging out; do you have the feeling that it evolved your trading in oil?

This is the equation i am looking at when making trading decitions in oil:

(y×5)+(x×1)+(z×4)= up/down/no trend

y=price (the price)
x=unknowm variable (politics, developments, statements of ministers of banana countries like UAE or Saudi Arabia, venecuela, lybia etc etc)
z=fundamental datas (oil production cost, storage numbers, US-Dollar)

also id like to add some interesting information that you wont find on tge internet that might be (not interesting for trading purpose) interesting for you.

did you know that the entire european (besides spain and UK) oil distribution system with all its pipelines and most of the storages was build and is still owned by the Americam governent and beeing rent to the single euopean countries? funny fact, isnt it. prize wise it changes nothing much, but political wise it is clear to see that europe sticks with the USA when it is about to make oil/energy political decitions and that there is a bias in the american favour. The former Sovjet states systems of oil distribution is politically still controlled by Moscow. this partially explains y eastern europe countries are running on russian oil but western on opec/US/Canada based oil. while the “wikings” countries (sweden, norway, finland = neutral countries that were always neutral between moscow and washington) run on norwegian oil.

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Hi Turbo!! Good to see you here! :slight_smile:

Yes definitely! But having only traded it seriously for one month so far, I cannot say whether it has also specifically evolved my profitability from it, it is still too soon to say. But I was deeply encouraged by completing last month in profit. But I think studying the background to one’s market certainly adds commitment and purpose as well as an understanding why prices are doing what they are doing.

Personally, I need to be deeply interested in my subject matter in order for trading to be meaningful, that is why I have never traded multiple currency pairs. I am very interested in the oil industry as a whole, not just the price and charts.

But I chose to post these things here for two reasons. Firstly, I am a total Newbie at trading commodities such as oil and I wanted a location where I could store my findings and learning progress. But also, I felt this could be useful for others who may be interested at some stage in also extending or changing to commodities…and since no one has yet complained about it being on a forex site then I may as well carry on with it unless and until someone does! :smiley:

Interesting equation! I understand the content, and the numbers as a means of weighting importance, but I don’t know how you put a value on x and z or how you decide whether the final number is positive, negative or neutral…perhaps you could explain more, or am I missing something obvious? :smiley:

Please do! I am grateful for anything helpful - and I only really have internet-based information. I know no one who has any direct history or practical experience of the oil industry or trading in it.

I did not know that. But I guess that would have been a natural situation following the division of interests between the allies at the end of the last world war?..but why it would have continued like that, well, that is another matter! :slight_smile:

I would, however, question one detail there, though. I think you will find that Finland is not quite in the same camp as the viking countries and actually imports most of its crude from Russia. Here is a graph published by the Finnish customs showing crude imports 2005-2015 where you can see the size of the Russian contribution under “Venäjä” (Crude oil is “Raakaöljy”). This is hardly surprising considering Finland’s history and special relationship with Russia, not to mention its lengthy joint border and close proximity!!

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Edited to add: I started simultaneously applying your “high 5” method when I began Trading oil. The first trade closed out with a 400+ pip profit and now the new long, which started at 48.45 is now in the upper 50’s. Well done! Naturally, I have not traded these live, being an entirely new venture for me, but I have been, and still am, taking my overall trading direction from it. I am really hoping your own high 5 thread will start to gain more input and experiences from others! (and good to see you back…! )

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My overall technical picture is a market that is still bullish in the longer daily timeframe, and bullish but temporarily paused in the 1H and lower TFs. There is still further potential on the upside but maybe there is a need for further data confirmation to provide the impetus. The two key areas still appear to be:

a) US crude stock levels - are they on the turn?

b) OPEC/NOPEC - will they extend their production cuts agreement ?

It seems that general consensus of opinion is now catching up with what the charts have been saying now for nearly a week - that oil prices are moving upwards - but not by anything overly dramatic. Expectations for Brent, for example, are now around $55 to $60 by the end of the year, and maybe even as high as $70.

Whilst recently the attention has been on growing crude stocks in the US, it is now being distracted by reductions in US oil product stocks such as gasoline. The implication being that if stocks of the end products are reducing then demand for them is increasing and therefore the refineries will be drawing more from the crude stocks.

A reduction (or even a halt in the rise) of US crude stocks, combined with growing expectations that OPEC/NOPEC will extend their production cuts in their May meeting to the end of the year, both serve to underpin oil prices.

But that is not the same thing as a bull trend. As I understand it, OPEC’s aim via these production cuts is to stabilise prices at a suitable level. There is something of a Catch 22 situation here in that the revenues of many oil producing countries have been hit hard by low oil prices, but the overall situation is not relieved much if prices can only be raised be cutting volumes. In addition, if other producers like the US are still increasing production then there is a fear at some stage that market share left open by these cuts will be filled and passed over to these other producers. This, in effect, may well put a cap on any significant price increases.

On balance, I can’t help thinking that even an extension will only remain with significant compliance until the price reaches a level that is above the pain threshold for the OPEC/NOPEC group. Once this is achieved, how willing will all these 24 countries be to see their market shares being transferred elsewhere? Will there start to appear cracks in the level of compliance with the agreed reduction levels?

So far, comment seems to restricted purely to a “yes/no” issue as to whether the extension will happen or not. But there is also the question that, if an extension is agreed, what will be the terms and the amounts? There is nothing to say that the terms must be the same as the present terms and surely OPEC will negotiate these according to their views of the overall impact of the cuts so far and their outlook for demand in the latter half of the year. Whatever the agree levels end up being will inevitably impact on market sentiment.

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The range today has been very narrow and sleepy all day. The shorter term charts (1H =>5m) have not produced a single buy signal all day with the MACD remaining in a constant steady down mode. That resistance band mentioned yesterday, starting around 50.70 was reached last evening and has held all day.

But the daily chart is still positive and, if anyone else is following the “High 5” method, then the position is still long with a stop at 47.06 (WTI), rising to 47.78 tomorrow (the low from 28.3.).

1H chart

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I confess I did try one long position this morning and luckily scrambled out with enough profit to buy a hamburger and a large fries…:slight_smile:

Otherwise things seem unchanged - more talk of how crude supplies globally are falling even if in the US they have remained high, and that oil rig counts are also lower globally contrary to the situation in the US. Also gasoline demand is rising and as the refiners draw more from the crude stocks there should follow a drop in U.S. oil inventories in the coming weeks. And OPEC is still OPEC.

Tomorrow we have the API inventories and on Weds the EIA Crude stocks. In the meantime, I am looking for a level to get long again…


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Again, no change overnight. The short term charts still neutral to weak, and we could still see some lower prices from here. But the Daily is still very positive. But the area above 50.70 is the bottom edge of the range that we have seen since the start of the OPEC/NOPEC coordinated cut in production levels that started from beginning of December last year and it could be heavy going trying to eat into this without some new impetus from, for example, a drop in US crude inventories.

There are some interesting points to look at on the Daily chart (without indicators overlay):

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  • The (red) broad channel that is still moving upwards. We are currently in a reversal from the bottom edge

  • The (blue) broad range in which oil traded from the start of the OPEC agreement until the drop as a result of the record US Crude inventories. We have just reached the lower edge of this range. Further price rises may well be contained within this range until the OPEC decisions in May concerning extending the current agreement and on what terms.

  • The (purple) 200 SMA which has been crossed to the upside, but is quite flat.

  • The (red) horizontal line through the current 5-day low at 47.78, being the stop/reverse from the High-5 method.

I am currently flat and waiting for a new short -term buy signal before re-entering in the direction of the High-5.

later today we have the API Weekly Crude Oil stock release and tomorrow, the EIA data. Since US crude oil inventories are the key near-term focus point at the moment, these are important - in particular changes in the stocks of oil products such as gasolene, since a drop in these stocks foretells a follow-on pressure on crude stocks.

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So we [I]did [/I]get some lower prices . but not by much and not for very long! :slight_smile:

By midday (here) the market had already started to look firmer and started giving buy signs, starting with the 5m chart, and from then on has climbed steadily upwards and into the $51+ range. Waiting now to see what the inventories data reveal…

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https://www.bloomberg.com/news/features/2017-04-04/uncovering-the-secret-history-of-wall-street-s-largest-oil-trade

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Hi Turbo, thanks for the link.

This is certainly an interesting insight into the world of “megahedging”!

I did mention in an earlier post how surprised I was to read somewhere how huge the scale of hedging is in the oil industry both by nations and companies, and of course that is understandable in such a so-called boom/bust type commodity. But it was interesting to read such detail about this specific case, Mexico.

This article is concerned with the results that Mexico itself (admirably) achieved through its annual hedging programme (which I think we could call an “actively managed” hedge programme as they seem to actually trade their hedge). But, maybe its because I’m an ex-banker, that my interest is naturally drawn more to the banks that take the opposite side of these deals. These banks are actively fighting for this business but it is surely for the fee income, not the transfer and assumption of Mexico’s open risk.

Mexico buys puts and is thereby “selling” its risk exposure to the banks who, by being on the other side, are selling the puts and thereby “buying,” or taking on, Mexico’s open risk of the consequences of a drop in oil prices. But the scale is absolutely huge and obviously the bänks do not hold on to this as an open risk, otherwise the news of the banks’ losses (equivalent to Mexico’s gains) would far exceed this news on Mexico’s successes!

They clearly lay it off, for example through the OTC and exchange markets…but to whom? This enormous exposure, undoubtedly multiplied manyfold by many other oil-related countries and companies, must surely be widely diffused, dispersed and diluted on a global basis to all kinds of smaller investment and speculative interests, which, it would seem, tend to lose rather than gain against such megahedging operations…

I loved the graphic, BTW! :slight_smile:

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Illustrator: Armando Veve for Bloomberg Markets