Quick update on the above. Price did try an early dip but it was short-lived. And since then the hourly has been sandwiched all morning between the rising blue pipeline below and capped by the daily pivot above.
We will inevitably see a break of one or the other during the NY session, but right now it is sit and wait…and, from a day-trader’s perspective, when it does break, how far will it be able to go today without a push from some new input factor?
Well, as expected, it was a quiet day going nowhere. Price tried a bit on the downside, then on the upside, and now in the middle.
If we look at the day on the 15m chart then it shows clearer the lack of significant day-trade opportunity. We may well still see some action in the closing moments as positions are adjusted ahead of the Easter break…
I’ve got some oil-related stuff to add here over the weekend, but we return to trading on Monday, when the USOil CFD’s are again open. In the meantime, have a great Easter weekend and drive carefully…
If no one nowadays actually buys a barrel of oil and it is usually transported via tankers or pipelines, why do we then talk about oil in terms of barrels? And what, exactly is a barrel of crude?
The origins of the oil barrel go back to the 1860’s and the start of the oil boom in Pennsylvania USA. In those days, oil from the fields was moved by men, wagons and horses to the rail stations and docks, and any liquid products requiring a leak-proof container were stored in wooden barrels.
As the oil industry was booming, the volume of oil being produced from the new wells was so great that early producers were using any watertight containers they could get their hands on, whatever the size. In fact, one of the most common sources came from the whisky industry, which was already transporting whisky in wooden barrels with a standard size of 40 gallons.
But since the variety of different container sizes was misleading and was causing disputes between buyers and sellers, the early oil producers in Pennsylvania decided they, too, needed a standard unit of measure. So they also adopted the idea of the 40 gallon barrel for themselves, but added an extra 2 gallons to cover spillages on route to their destinations and thereby settled on the standard wine tierce which was two gallons larger than the standard whisky barrel.
Barrel makers (coopers) had already been producing watertight 42-gallon wooden barrels since the time of Richard III, who set the size of a tierce of wine at 42 gallons in 1483-1484. A 42-gallon tierce weighed more than 300 pounds when filled with crude oil– which was about as much as a man could reasonably handle. Also twenty barrels fitted on a typical barge or railroad flatcar. Bigger casks were unmanageable and anything smaller was less profitable.
The barrel, or “tierce” was therefore officially adopted by the oil industry in 1866 when a handful of America’s earliest independent oil producers met in Titusville, Pennsylvania, and agreed that henceforth, 42 gallons would constitute a barrel of oil, and released the following circular:"
“Whereas, It is conceded by all producers of crude petroleum on Oil Creek that the present system of selling crude oil by the barrel, without regard to the size, is injurious to the oil trade, alike to the buyer and seller, as buyers, with an ordinary sized barrel cannot compete with those with large ones. We, therefore, mutually agree and bind ourselves that from this date we will sell no crude by the barrel or package, but by the gallon only. An allowance of two gallons will be made on the gauge of each and every 40 gallons in favor of the buyer.”
Henceforth purchasers of oil would know exactly how much they were buying at one time and thereby King Richard III’s English wine tierce became the American standard oil barrel.
A few years later, in 1872, 42 gallons became the standard for the Petroleum Producers Association, and in 1882, the U.S.G.S. and the U.S. Bureau of Mines adopted the standard as well.
Nowadays, however, pumping crude into 42 gallon vessels would not be efficient or economical so it’s generally pumped straight into tankers or cargo ships, but the concept of the barrel has stuck.
As a result, the 42-gallon oil barrel has become the unit of measure rather than the actual physical container.
Maybe the first thing that comes to mind when we think of crude oil is gasoline and engine oil. But crude oil provides an amazing range of products, many of which we use every day without even thinking of their origin. For example, shampoos and lotions, food preservatives, fertilizers, plastics and packaging.
Each barrel of crude oil produces about:
From the residue, the refineries also produce over a dozen other petroleum products such as gas, asphalt, lubricants, as well as various components used by the petrochemical industry to make a wide variety of chemicals and plastics, which appear in a huge range of end-products.
Here is a partial list of products containing by-products from petroleum refining, found on one website:
This brings back the old chemistry lessons at school around fractional distillation 
Yes, me too! 
I guess oil is just about the most versatile raw material on earth. I often wonder what the history books will write about the era of hydrocarbons, which will probably be no more than about 300 years of our entire history - but what an impact!
I just read that China is theatening to suspend supplies of crude oil to North Korea if they go ahead with a sixth nuclear test.
Apparently, China supplies North Korea with 90% of its oil requirements and such a move would paralyze the entire country in a very short time.
A very disturbing build-up of tensions going on in that region…
…and yet still, I read in another article that China is now the No.1 [I]buyer [/I]of US crude…??
In February, China overtook Canada as the top destination of US crude exports.
So China [I]buys [/I]crude from the US…and North Korea [I]buys [/I]crude from China?
And in the meantime, the US sends the USS Carl Vinson+entourage to the Korean peninsular…
To be sure, this is a strange world!
Crude Oil markets are open today after the Easter weekend, but unless something unexpected is released or occurs (as is certainly always possible in today’s rather intensive environment), then I guess it will be a thin and quiet one.
To summarise where we are at present:
Bullish:
OPEC/NOPEC is still maintaining a super high level of compliance with the agreed production cuts - and strong optimism that the programme will be extended to the year-end at the next OPEC meeting on May 25th. Also currently exempted countries, Libya and Nigeria, may also then be brought into the deal.
The weekly release from the EIA has started to show signs of inventory declines as refiners step up the pace as we head into the traditional summer driving season after their maintenance periods. If this is combined with a significant general increase in demand as the US economy improves then the rate of decline in inventories could start to speed up. (stocks elsewhere globally already declining)
The geopolitical picture is very intense at present with commentators looking at the Syrian situation and the US/China/North Korea developments as well as the low ebb in US/Russian Federation relations.
Bearish:
Recent downgrades in projected global oil demand growth, including the IEA, who dropped their own overall estimate for this year to 1.3 million barrels per day. It cited in particular demand slowdowns in India, Russia, the U.S., Korea and the Middle East.
Huge crude global stockpiles are still putting the brakes on oil price gains. For example, the OECD storage levels at 330 million barrels are still above the five-year average, which is a key metric that OPEC has been highlighting in its arguments for production cuts.
Neutral:
One interesting point of view is that any upward movement of prices resulting from the OPEC cuts in production would only encourage a higher production rate from the US shale regions and other non-OPEC countries, which would neutralise the impact of the cuts and place a corresponding downward pressure on prices.
Neil Atkinson, the IEA’s head of oil industry and markets, and editor of the agency’s monthly report, says:
“We’re seeing demand growing fairly steadily in the oil market and we think that the balance is coming together slowly but surely and the numbers are there to support it. We think that as the year progresses that rebalancing will become more and more apparent in the drawdown of actual physical stocks,”
Daily chart:
A pull-back from the resistance band (blue) starting around 53.75 and formed from the highs reached following the start of OPEC’s cuts. Now supported by that (red) band between 52.50 and 52.30.
The 5-Day low has now jumped to 51.47 (from 7.4.). Position started at 48.45 on 29.3.
4 Hour chart
Still in the pull-back from the resistance region - waiting for close back above the pipeline ribbon
1 Hour chart still in pull-back - possibly to the support band at 52.50 to 52.30. Looking for a bounce off that confirmed by a close through the yellow/green bands and a upward cross in the pipeline ribbon.
I am only looking to buy at present, mainly due to the geopolitical risks around. But also waiting for a good signal before entering and not anticipating or pre-empting the bottom here.
The arguments surrounding the changing supply and demand picture do not give me any clear view one way or the other, but on balance, I still go with the reducing stocks and continuing production cuts putting upward pressures on prices.
A quiet range so far today, as expected. We had one spike up which I believe was due to comments from the Saudi Arabian energy minister assuring that OPEC will do what is needed to bring balance to the global supply/demand equation. But it was short-lived and the market has settled back towards its lows for the day, at least for now…
This spike can be seen on the 15min chart (which is very useful on quiet, directionless days). I didn’t trade it as I am not sitting in front of a PC all day in this kind of quiet trading just in case something might turn up (or down!), but it shows how a break through to the upside would have still scraped a small gain even though the move was not sustained.
I did have a buy order all day at 52.50 which was not hit. I have now cancelled it as a hit at that level late in the trading day could easily lead to further falls. Better to return to it in the morning…
No great surprises overnight (probably due to all eyes globally awaiting with great excitement to see the new BP forum menu! 
. The new menu layout looks good to me - even if the commodities section is about as far down the list as any deepwater oil reserves - but I guess that is about where a minor, non-forex, topic belongs on a forex site! 
)
The Daily chart is still looking bullish, and we have touched the top of that support band at (about) 52.50 to 52-35. This is now at a very interesting point because this band has been significant since the price rise following the OPEC cuts that began in December and any downside breaks have quickly reversed back above this level. Prices above $50 reflect OPEC’s target level, but once achieved also starts to focus on increasing supplies from US shale and the ongoing increasing oil rig count there. Kind of a floor and cap scenario here whenever we are advancing above the $50 levels.
THis support band is also interesting because the 5-Day trade has now caught up with the market and the 5-Day low stop level is now at 52.275 - just below this support band! If we break the band then this stop will almost definitely be triggered and will realise a profit of 383 pips! - but we are not there yet, and there is still the option of a bounce off this 52.50 level to even higher levels…
We have the API weekly Crude Oil stock data later today and, of course, the ever-present geopolitical risk factor.
The 4-Hour chart has lost its bullish position with the yellow band extending below the green band (for the first time since end of March). However, I see this only as a sign of a pause as the charts “catch up” with the current price. The 4H pipeline ribbon is flat and neutral and I would like to now see a crossover of this 4H ribbon before reverting to the 1-Hour chart for a trade entry ( I am still only looking for buying opportunities).
These periods of price consolidation are notoriously the most susceptible to fake breakouts on the shorter TF’s (e.g. 1-hour and 15min). In my opinion, this is the time when one should either drop to ultra-short TFs like 5m and below and take quick trades for a few pips each or learn to sit on one’s hands and wait…and wait…and wait… for the longer TFs like 4H to signal a new significant move starting out of the consolidation/pause phase. In the case of crude oil CFD’s the former scalping type trades are not really an option (in my view) due to the 5-pip spreads.
Quick update on the above:
After a prolonged dithering just above the support band (see hourly chart below), we finally, and quickly, broke through it and, as anticipated, hit our 5-Day low exit at 52.275 for a gain of 383 pips.
I am not sure of the reason for the down move, could it be, at least partly, due to the front futures contract expiry and roll-overs? It is hard to estimate the impact of this and/or the Easter break on prices right now, but I take this as an excellent example how one must trust one’s charts! The 4H has been saying for several days that we have stopped advancing and the potential is for better buying opportunities if one can only be patient and wait! So I have waited - and am still waiting! which means I am no richer than before, but certainly no poorer either!
I don’t see any significant support under this level until (and if) we reach the lower regions of previous breaks of this price band, i.e. around 51.30 to 50.80. But on previous breaks below that support region we have seen a quick and strong bounce back above it within a few days.
Right now I am keeping an eye on the 1H chart to see if NY continues the slide or will we see some post-break fresh buying appearing. I am beginning to feel itchy fingers, having not traded for a few days since closing out my long position - but patience, patience…or am I simply missing out on a good sell opportunity here? But with oil, I do tend to think it best just to always buy and, if its wrong, then just wait for it to eventually come right again!!! But it is not as simple as that! (BTW current CFD’s expire tomorrow 19.4. for USOil)
Updated Daily chart
I Hour chart
Another quick update!
Well we did not stay below that band of 52.50-52.35 for very long! We had a close on the 1 Hour back above the band but it stalled badly at the Daily pivot - at least for now.
I took a quick buy in/out just to kill the withdrawal symptoms of a few days without a trade and now, duly satiated, I’ll wait for the 4H and maybe even the daily to confirm the upside potential.
I really don’t know why this region is so seemingly relevant, but, if it works…
We’ve been up and down through this narrow band of 52.50 to 52.35 all day on the short term charts but the Daily chart is still trading above it and thereby still holding on to the bullish scenario.
But we have the API crude oil stocks in about 20 mins and if that reflects a build in stock levels as the US shale production continues to increase then it may force a close back down through this range.
However, prices still seem to be holding firm in spite of US oil production increases and several US banks, as well as OPEC, are looking at $60+ per barrel later in the year. Any long term investor would probably still be buying into any weakness.
I actually hope more people here see the value within this thread - I’ve never ever looked into Oil.
But, from looking at these charts, and more importantly the analysis behind them it starts to ask the question “is there actually a world outside of FX” (even though what works should not ‘[I]apparently[/I]’ be changed)
Even though I don’t comment, perhaps because I feel I don’t know enough Manxx, I still read each of your posts.
Keep it up.
Thanks Jezzode for the encouragement! I will respond more tomorrow to your post!
I just wanted to add here a pic after the API number that shows we did actually break down below that range (again!). But I have put the 4H chart instead this time just to show how on some days price can fly around everywhere and not actually go anywhere at all! Look at those spidery wicks and the tiny candle bodies in the red circle - and all in one day! I think this really shows the importance of watching multiple TFs in order to get a true picture and learn to choose which timeframe best suits the kind of price action evolving during the trading sessions.
More tomorrow!
Very valuable insights and good starting point for the beginners.
Please keep up the good work.
Thanks, av0224, that is good to hear
Crude oil prices sold off late yesterday in response to the American Petroleum Institute (API) weekly oil stocks report. Although the API reported an inventories draw of 840,000 barrels, this was less than industry analysts’ expectations. I.e. not so much a bearish figure, rather just a bullish dampener!
In addition, the API reported an unexpected build in gasoline inventories of 1.374 million barrels instead of an anticipated draw for fuel.
Additional pressure on prices arose from further data indicating continuing increases in US oil production in the coming months (which is seen as neutralising the impact from the production cuts implemented by OPEC). This time the data came from the EIA’s Drilling Productivity Report.
Sometimes, what is most interesting or significant concerning price reaction to data releases, is what does not happen rather than what does happen! In my opinion, there were sufficient negative pressure sources yesterday to have really pushed prices down if the overall sentiment was negative, but the reaction is actually surprisingly muted. This suggests to me that there is still a longer term expectation of higher prices and that there is little interest in setting up short positions. For example, an oil producer (like many other businesses) will typically lock in certain price levels with short hedges in order to guarantee their future income by reducing the risk from exposure to price falls before the oil is actually sold. There are still many arguments for a $60+ barrel price later in the year.
Another reason for the muted downside response might be because there has been significant divergence between the weekly crude oil stocks data released by the API on Tuesdays, and the weekly inventories data released by the EIA on Wednesdays. So maybe the markets are on hold, waiting for further confirmation of the current state of crude inventories and gasoline builds from the EIA later today at 10:30am EST. If these also reflect sluggish draws on crude stocks and significant gains in the refined oil products then I guess we will see more weakness in prices.
Here’s an update on the daily chart - we are still struggling with this “magic” band around 52.50 to 52.35:
But I can’t help pondering who is actually really interested in seeing lower prices! Certainly the oil producing nations are not, especially those whose government budgets depend significantly on oil revenues such as the OPEC countries. But surely neither are the oil companies who are producing and refining the oil. For example, the companies in the US shale oil regions have succeeded in reducing their breakeven thresholds via technological improvements, which has driven the current boom production level such as in the Permian basin. But surely they are looking for a healthy pay-back both for themselves and for their investors and are certainly not excited by the prospect of selling their oil at a mere pittance over their beakeven levels?
OK, maybe the non-oil based economies are keen to see cheap energy levels because that releases and diverts individual incomes towards other products and investments and promotes overall economic growth. But there are also limitations to the benefits even there, such as a reluctance to develop alternative energy sources, less incentive towards low-emission transport, reduced govt tax revenues, etc.
Maybe there is an optimum range for oil prices that is acceptable for all interested parties. And although the overall supply/demand ratio is the key factor affecting prices, we could see a balancing mechanism whereby:
under-supply/stronger demand => higher prices => more oil production activated => lower prices
over-supply/weaker demand => lower prices => shutdown in production wells => higher prices
…But as we now focus on the possible shift of the oil glut from basic crude into refined gasoline, it is interesting to look back to an opposite situation not so many years ago…
Just want to add the current 1Hour chart showing the price action from yesterday morning to this morning. You can see yesterday’s short-term opposing reactions and confusion between bulls and bears quite clearly, especially compared with the rather nondescript daily candle on the daily chart in the above post. Another example of the need to keep an eye on the long-term charts - it is so easy to lose sight of the overall picture if one only remains submerged in the rotations of the 15m-1m charts. - If you want to look at trees, then walk in the woods. But if you sometimes want to also see the forest, then sometimes take a helicopter…
Key observations: The near-term yellow band is still under the longer term green band and we are trading under yesterday’s daily pivot (blue dashed) and at the bottom edge of that horizontal band. This suggests that the market is still more vulnerable to bearish inputs and I am not buying until I see an hourly close through the green band and above the pivot - and only then if the 4H is looking sympathetic to an upmove.
The situation is a bit complicated today because of the fact that current CFD’s expire tonight and any open positions will be automatically closed after the normal day’s close, so positions cannot be kept open overnight even if one is taking a longer term view. So we are limited today to a day-trade scenario, but that is shadowed by, and until, the upcoming EIA release later…
