Crude Oil and oil markets

[anon46773462]

WTI ended last week up from the previous week as a result of Friday’s OPEC+ group solution to cut production by 1.2 bpd.

But the immediate rally response fell short of the week’s high put in on Tuesday and also drifted off quite quickly on doubts concerning how quickly the OPEC+ cuts could/would be implemented and weakness in the stock markets which was further softened by the Huawei events in Canada/US.

Although the oil markets finished higher, the closing price was almost exactly on the weekly 200SMA which closed at 52.18. This gives an overall very neutral feel to the current price level. We meet with this weekly 200SMA only very rarely as shown below, The last time was a year ago at the end of 2017 and before that in 2014.

There are, as always, arguments for higher as well as lower prices from here but, on balance, it seems we are still far from a bull trend here. There may well be room for a short term retracement to the upside given the ferocity of the recent decline, but as long as the US president wants significantly lower prices (for domestic/global economic stimulation reasons as well as to further strengthen the pressure of oil sanctions against Iran) and the US oil industry continues to pump at record levels then the downside is still vulnerable…Even cheaper fuel bills…

[anon46773462]

NOTEBOOK: OPEC – Qatar

Qatar announced this week that it will be leaving OPEC at the year end.

This will reduce the number of OPEC members to 14. Qatar is not a major oil producer or exporter and is currently OPEC’s 11th largest producer.

However, Qatar is a world leader in liquefied natural gas (LNG), and its given reason for leaving OPEC is to concentrate its attention on the growing global LNG market. Qatar’s massive gas field off its northeast coast is considered to be the world’s largest non-associated gas field (i.e. with no oil) and holds about 10% of the world’s known gas reserves. Overall, Qatar is the third-largest holder of natural gas resources behind Russia and Iran.

All oil and gas activities in Qatar, including exploration, production, refining, transport, and storage, are controlled by the state owned petroleum company Qatar Petroleum (QP).

Qatar has a population of around 2.6 million, most of whom are expatriates. Thanks to its oil and natural gas reserves, Qatar has one of the highest per capita incomes in the world.

Qatar declared independence from Britain on September 3, 1971. Its national flag is the only national flag having a width more than twice its height. The nine serrated edges separate the colored and white portions. They signify Qatar’s inclusion as the 9th member of the ‘reconciled Emirates’ of the Persian Gulf at the conclusion of the Qatari-British treaty in 1916.

Since June 2017, Qatar has been under a diplomatic and economic embargo by Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt. The main reasons for the embargo include alleged support for terrorism and Qatar’s relations with Iran.

Geographically, Qatar is small and looks remarkably like an insignificant appendix growth on the side of the huge Saudi Arabia. But its size is totally disproportionate to its wealth and power – as visibly represented by its skyline……………

[anon46773462]

Week 50: 10-14.12
Perhaps the most noticeable thing about last week’s price movements and the Friday close was that, in spite of the major OPEC+ meeting on Thursday/Friday we stayed within the current range and even closed right in the middle of that range and right on both the weekly and the Hourly 200 SMA’s. That is so neutral.

On Friday, the market fell immediately back after its initial surge following the announcement of the terms of the OPEC production cut agreement. This suggests that the market is not yet convinced of either the timing of its implementation or its effectiveness in reducing oil inventories in the face of falling demand.

This week’s focus may well be on the inventories data and any news relating to the US-China relationship and, more specifically, to the possible trade negotiations.

There is plenty going on in the Middle East regarding Saudi Arabia, Qatar, Yemen, Iran etc. But the impact on oil prices is likely to be muted. Canada is another one to watch as there are country -specific issues there at present (pipelines, refineries, output, etc) but that is more likely to impact currencies rather than global benchmark oil prices.

The daily chart shows the depth of the recent decline and the current consolidation range that has developed, as well as the weekly 200SMA level where we also closed on Friday. But this consolidation range is around 500 ticks wide and provides ample opportunity for short term trades.

The 1H chart currently emphasises the range that remained intact in spite of the OPEC news. The upward reaction even fell short of the week’s high that was put in on Tuesday even before the OPEC meeting.

Adding some indicators to this 1H chart shows the movements since the Friday release - sharp rise, immediate drop back, neutral close, and no follow-through in Asia this morning…we are currently above both the Weekly and the 1H 200SMA and the daily pivot from Friday but still below the (superimposed) grey cloud from the daily chart.

We can say that the meltdown in prices has been stemmed for now, and that talk of production breakeven levels around $50 could bring in support around these levels but we are far from declaring a rally in oil prices yet and there is still the real possibility of further declines towards the $43 level (support on weekly charts)

[anon46773462]

Started off very slow today but then we got an hourly close through no less than four technical levels: the daily pivot, Friday’s close. the weekly 200SMA and the 100SMA. That was a grade A sell signal and we have seen good follow-through.

But what should have been an easy 100 tick win on the day turned out to be only 40 ticks due to my own bad handling - Just goes to show that good results demand more than just getting the direction right!

Having seen my first position reach 50+ ticks the market then turn rapidly back up and I scratched with only 3+ ticks profit (thinking to wait for a higher level before reselling). The market then moved up further as expected…and fell again while I was occupied elsewhere. Got in short again rather late but managed to squeeze out another 35+ ticks anyway…

There is a good chance we will continue down to at least last week’s low and but that will do for me for today’s trading.

[anon46773462]

NOTEBOOK: EU-IRAN SPV

Another step towards the goal of diminishing the role of the US Dollar in EU trade.

Reuters reported today that the EU foreign policy chief, Federica Mogherini, has said that the system to facilitate non-dollar trade with Iran, and thereby circumvent US sanctions, may be up and running by the year end.

The EU has been developing the concept of a Special Purpose Vehicle (SPV) in order to continue trade with Iran under the terms of the 2015 agreement, from which the US has unilaterally withdrawn.

Progress with the planned mechanism was delayed because no single EU state was willing to host it alone. France and Germany are now likely to take joint responsibility for the SPV,

However, even if it comes into effect at the year end, it is not certain yet whether it will also include oil trade.

[anon46773462]

Situation unchanged. A slight upmove overnight but the same short term (1H) downmove still intact. We are about halfway back through that rough volatility at the start of last week prior to the OPEC meeting Thurs/Fri.

Market concerns remain the same: weakening economic growth globally, US-China trade negotiations, Brexit possibility of no-deal departure,continuing increase US crude output, delays before OPEC cuts start to impact (Saudi Arabia did confirm that their export volumes will start to be cut immediately, which boosted prices a little).

But there is a strong feeling that $50 is a sound base for oil prices as it starts to breach into producer breakeven levels at which point production will start to slow down as taps are shut off. Therefore a balance point may not be far away from present price levels and further evidence of demand slowdown might be needed to prompt further significant selling.

API/EIA inventories this week may be significant.

[anon46773462]

Prices managed to pull back a bit today. A close above the daily pivot offered a good long trade back up to that weekly 200SMA.

Continuing volatility within the range…

A difficult market to predict when consolidating, but is following technicals very nicely.

And with that it is time to close up for the Christmas Season. Visitors and things to do. If there is anyone looking in here, Seasons Greetings to you.

[bleumagic]

Started off very slow today but then we got an hourly close through no less than four technical levels: the daily pivot, Friday’s close. the weekly 200SMA and the 100SMA. That was a grade A sell signal and we have seen good follow-through.

Hi Manxx, real newbe here, if you could help that would be great.

Can you explain why this is a good sell signal? Meaning when and how do you realize this?

I see the hour chart on that day (Monday) moving up from 200SMA to the 100SMA in early trading. then moving sideway for a couple of hours, then a sharp move to the 200 SMA, is this when you realise it will move down? or is it after when it breaks below the 200SMA aswell?

[anon46773462]

@bleumagic

and we have seen good follow-through.

Hi Manxx, real newbe here, if you could help that would be great.

Can you explain why this is a good sell signal? Meaning when and how do you realize this?

I see the hour chart on that day (Monday) moving up from 200SMA to the 100SMA in early trading. then moving sideway for a couple of hours, then a sharp move to the 200 SMA, is this when you realise it will move down? or is it after when it breaks below the 200SMA aswell?

Hello @bleumagic!
Nice to hear from you! I am not so used to people taking an interest in this thread, and I treat it nowadays as more of just a personal notebook!

I have the habit of taking down the charts after they have been there for a while as they are usually of no further interest or use here. Forums are rather like newspapers - only good for the day!

But, in general, one has to take these indicator signals in the context of the current price movements. In this case we still had strong overtones from the massive 30% drop in crude prices and it was likely that there would still be either a continuation downwards or at least some useful spasms resulting in spikes to the downside. So I was specifically looking for such a move.

In this type of situation I look to technical levels such as the previous week’s Friday close, the previous day’s pivot (average) price, and a number of MA’s that are generally widely watched by bigger participants such as the 200SMA on most timeframes . In this case, all four were close together and price broke through them all.

But the situation has changed since then and we are in a strange kind of range trading that has now been forming for several weeks now. You can see it on this 4H chart. And that weekly 200SMA is right in the middle of that range!! In this kind of environment there is little to justify which way it is likely to move from this centrepoint and it becomes more interesting to switch to a swing trading approach and enter at the extremes of the range.

But, having said that, this week’s price range has failed to take out either of last week’s high or low and is even not far from last week’s close at 52.21. So there is really little to do here that makes much sense from a risk assessment/probability perspective. Remember, whatever MA you look at, price will always be on one side or it or the other! So one needs to consider it in the light of the overall situation.

But what is your own interest here? Are you new to both currencies and commodities or just looking at a new diversification into oil?

[Marc_Forbes]

In the past 12 months, SaudiArabia has seen significant progress made by Saudi Aramco and Sabic’s crude-oil -to-chemical complex. The region has witnessed a steady pace of expansion, as government bolsters manufacturing capabilities to oil the wheels of
Economic change.

[anon46773462]

In the past 12 months, Saudi Arabia has seen significant progress made by Saudi Aramco and Sabic’s crude-oil -to-chemical complex. The region has witnessed a steady pace of expansion, as government bolsters manufacturing capabilities to oil the wheels of economic change.

Saudi Arabia is in the process of attempting to diversify its industrial and commercial base and has big plans. But it requires a huge amount of capital to achieve it.

There had been plans to raise a large amount through the issue of a Saudi Aramco IPO but that seems to have been shelved for the time being. I read somewhere that one of the reasons for its postponement was the US requirement for company information disclosures that SA was not prepared to make public.

But in spite of that, SA needs a reasonable price for oil in order to meet its normal budget expenditures as well as future investments in energy and diversification projects. Whether OPEC+ manages to sustain higher energy prices remains to be seen, but I am reasonably positive that we probably won’t see any major collapse in price below $50 for WTI as long as we do not slip into a serious state of global recession. For that reason, it is worth keeping one eye on the equity markets. For example, the S&P is not looking overly cheerful…

[bleumagic]

HI Manxx,

Thanks for the info, create stuff

Working in the FX industry for the past year and half for a Broker in EU (Cyprus). I stare at the charts a lot and traded on Demos; now on some Live environment.

But Oil, like your story is more interesting to me. I like the hole History behind it (“there will be blood” is one of my fav films ) More importantly i like the way the price trends directional for longer time and the actual geopolitical story behind the commodity. And it happens to be that i trade more successfully with it than FX.

But I haven’t been using a lot of indicators, apart from SMAs and Bollinger Bands… So looking to get more technical on it

[anon46773462]

But Oil, like your story is more interesting to me. I like the hole History behind it (“there will be blood” is one of my fav films ) More importantly i like the way the price trends directional for longer time and the actual geopolitical story behind the commodity. And it happens to be that i trade more successfully with it than FX.

That film was shown here on TV just a few nights ago. I hadn’t seen it before and I enjoyed it immensely. Even though the film was made in 2007, it is based on Upton Sinclair’s book “Oil!” which was written in 1927 and so I can believe that its content, whilst being a satire, is an extremely credible portrayal of how things worked in those early years!

Let’s just hope we do not end up in the same condition as Daniel Plainview!

[anon46773462]

We’re seeing some weakness today with a break through last week’s Close and then Low. We are also below that weekly 200SMA.

But we are still within the same range that has held since mid November.

Seems fears of slowing global demand are behind this softness. Equities are also looking weak.

If demand slowdown continues then we may see a break through these lows and, if so, then towards the longer term weekly support around $43 (WTI).

4-Hour chart:

The S&P Daily chart for this year:

[anon46773462]

@anon46773462

If demand slowdown continues then we may see a break through these lows and, if so, then towards the longer term weekly support around $43 (WTI).

Last week witnessed one of the worst weekly falls in US stocks over the last 10 years and similarly crude oil prices took another dive reaching just below $45 for WTI.

Around the globe, estimates for growth are being revised downwards and recent US data has been showing some softening there, too.

The main concerns are due to the US/China trade issues, rising US interest rates, the impact of Brexit on UK and European economies and even uncertainties about the state of the US administration.

When declining global economic growth is combined with a rapidly expanding US crude oil production rate, which can be seen as countering the recent OPEC+ planned production cuts, the end result is inevitably a sell off in crude prices.

Personally, I think we will see a support around the lower $40’s level (if we get there) which has held for some years now. Apparently a number of producer countries as well US shale producers are no longer profitable at those lower levels and will gradually start to pull back on production and bring support to the market. But it is a very vague and imprecise zone on a weekly basis from a trading point of view.

[Hntaran]

I think that I completely understand that moment when you were bored with the things that you have been doing for so long. It is ok to have a break. I wish you all the best with oil trading, but I really think that one day you will come back to forex. For sure.

[anon46773462]

I wish you all the best with oil trading

Thank you for your kind thoughts @Hntaran, it has been going ok… so far

[anon46773462]

[anon46773462]

Here we are, its Christmas Day, and we should all be totally engrossed in a day of peace and happiness with family, and with thoughts far away from the markets and movements and charts,

When I thought that the oil markets could reach as far as the lower $40’s on the back of further stock market weakness, I didn’t anticipate the US Treasury Secretary would push us there in what apparently ended up as the worst Christmas Eve fall in the US stock market ever!

I mean, why does the US government’s top finance minister disturb the top men in the country’s six largest banks on a Sunday to check that they have sufficient reserves to handle any liquidity problems - and then tell the world what he has done on Monday, Christmas Eve, in the thinnest trading days of the year - and when no one was actually even concerned about that as an issue?

If you were happily sitting at home having your breakfast coffee and your country’s finance minister. suddenly announces on TV that he has checked that all the country’s energy companies have enough petrol for everyone, what would you do? Maybe just jump in you car with every available canister you can find and rush to the nearest petrol station - along with everyone else!

When markets move in the direction of the prevailing trend, in thin markets, and in reaction to panic news, there is little to slow them down, and logical analysis is quickly overidden by algorithms.

Well here we are, close to $42 WTI. There is little doubt that we will still see some significant spikes, in either, or both, directions after the holiday and this is not a market to trade in right now.

When the dust settles, and we stop panicking about even the US government shutdown (which is totally irrelevant in this context but is also being thrown onto the bonfire to fan the flames), then I still stick to eventually seeing the lower $40’s as a bottom zone - unless, of course, we really are entering a global recession period…

US Oil has dropped around 45% over the last 10 weeks.That is the equivalent of pricing in a recession and I think we are far from that in reality.

So what if the New Year sees 1) another OPEC meeting (as mentioned by UAE), who have dedicated themselves to "doing “all that is necessary” is stabilise oil prices (at a level higher than where we are right now), 2) a settlement of the US govt funding impasse, 3) positive news in the US/China trade talks and 4) even a breakthrough in the Brexit agreement issue.

But markets are what they are, and a lot of work has to be done by a lot of government/central bank spokespersons to calm the fears and re-instate credibility to the stock markets before we can be confident that the markets are reflecting the reality of the global situation and not just focusing on the string of tweets, that appear to be coming straight out of ponderings in the US govt restrooms.

[anon46773462]

One characteristic that probably exists in every trader is the belief that there is always another opportunity, another new start, another way to further improve, another way to fail less…

New Year is perhaps the most favourite time for focusing on changes and new things and I have already chosen my New Year’s Resolution. It came from a video recently posted by @tommor in which the presenter says:

- let the chart do its job.

This is it for me next year!

As a discretionary trader who bases entries and exits almost exclusively on chart structure, I too often tend to anticipate what I think the charts are about to tell me instead of waiting until they actually do tell me something.

Since, like most traders, my charts are the end-result of a long process of development and honing to suit my personal trading style and requirements, why do I then tend to try and run ahead of them!

So, in 2019, I will humbly give my charts the space and the time to do the job they were designed for…