It sometimes happens that a market can get itself into such a frenzy of conflicting views over a relatively simple issue that one can only conclude that all it can do is trip over its own shoelaces - first the left foot and then the right!
Firstly, we had the experts claiming that oil had officially entered the bear mode, having dropped over 20% from its recent highs - reason being doubts about OPEC succeeding in shrinking the oil glut because of increasing US shale oil.
That was immediately followed by a straight series of up days - reason being that prices had reached the US shale oil breakeven and taps were being turned off.
Yesterday morning we saw a sharp and deep drop in price - reason being Russia says it is not interested in deeper production cuts within the OPEC/NOPEC agreement.
Yesterday evening sees a bounce up in prices - reason being the American Petroleum Institute (API) reporting a larger than expected draw of 5.764 mill barrels in US crude oil inventories (expectations were for only a 2.83 mill barrels draw.
The API also reported a large drop in gasoline inventories of 5.7 mill barrels compared with an expected draw of only 500,000 barrels. Since this figure is for the week ending June 30, I don’t know whether this already includes the usage over the US July 4 holiday. I assume these figures are based on gasoline distributors’ orders from the refineries and not the actual retail tanking at the gas pumps, so I guess it does already reflect the holiday consumption.
Here is the API table of changes in Crude Oil Stocks for this year:
Anyway, getting back to the point, later today we will have the EIA versions of weekly Crude Oil and Gasoline changes, and these often differ substantially from the API reports. So will we get yet another kneejerk reaction?
The point is, all these issues relate purely to the current amount of oil in storage and whether it is going to reduce to the levels desired by OPEC or stay high? But whilst no one is actually dumping huge amounts on the market at rock-bottom prices, how much does this issue really matter? Afterall, we are not talking about a scarcity of oil, nor are we talking about possible price wars like we have seen before.
Maybe what we are really talking about is whether OPEC controls price via the supply taps or does the US? The current US policy is to focus heavily on increasing hydrocarbon energy forms, achieving greater independence in meeting its own energy requirements and utilising energy resources in its negotiations with its trading partners. Nobody wants super-low prices but higher prices are going to be met with correspondingly greater production, and not only in the US.
But as we all know, markets are speculatory and trade on the flavour of the day… and that’s why we like them. A think one of the key qualities of a good trader is a total lack of a logical mind - never look for sense in the move, only how far is it likely to go!
Interestingly, the oil market seems to have totally ignored the geo-political problems brewing around North Korea. There has been a lot of continuous rhetoric and muscle-flexing going on for months, but no one has seriously believed that Nth. Korea was a serious global threat. Now that has changed with the US acknowledging that Nth Korea tested, apparently successfully, an ICBM capable of reaching the outskirts of the US. This issue is surely coming to a point of no return where a solution has to be found.
But we have three of the biggest global oil nations involved in this: the US, Russia and China. And these three do not have the same thoughts how this issue should be resolved. Relations between the US and Russia are already severely strained and it looks like the US and China are now also going to fall out over this.
Personally, I consider this a far more serious issue than counting the barrels in the storage depots. Both Nth and Sth Korea are heavily populated countries and are technically still at war with each other. Even a limited, local clash could be disastrous, but if these three super-powers are drawn in then we are into a cataclysmic scenario that could escalate far beyond those two of the last century!
But in the short term for this week? I have no view, my charts are mixed and neutral. So I am (again) trading mini signals on the 15m chart for a fixed 15-50 pips per trade - in either direction.
Interestingly, the stop has now jumped to yesterday’s low at 44.51 and now locks in a profit of +9 pips. It was currently in profit at yesterday’s close by +115.50 pips.
THe High-5 method is found here: Starting out trading and dont know how to make Profits?