Yesterday's significant drop in prices, it seems, was sparked (perhaps not the best term to use when talking about gasoline!) by the surprise large increase in gasoline stockpiles rather than any change in crude inventories.
The Energy Information Administration (EIA) reported an increase of 1.54 mill barrels last week, compared with an expected 2 mill decrease. Whilst crude inventories did fall, crude production levels rose to the highest since August 2015.
This is what makes trading so delicious:
One day we can be talking of higher prices from OPEC cuts starting to bite, geopolitical tensions, and investment bank upward projections (Goldman Sachs and Citigroup predicting $65-70 by year-end)...and the next day we are looking at a seemingly bottomless drop due to US increasing production and inventories, a Syria attack that meant nothing other than an impact on US domestic politics and a naval armada that wasn't steaming towards North Korea afterall! That's what's called dynamic brain stimulation (I just made that up!)
Crude oil prices had indeed recently climbed significantly into the $50-60 range and the charts have been indicating a top-out vulnerability for a couple of days as discussed in above posts. This price rise was built mainly on the successful high compliance with the current OPEC/NOPEC production cuts. But this week's US production figures have again raised the idea that rising U.S. output is undermining and neutralising these efforts to reduce the global glut and achieve a state of balance in the market - all at a sensible price level.
WTI ended up dropping by nearly $2 and was the biggest drop for some weeks.
But behind these figures, the other current factors are still unchanged.Globally, the market is moving closer to a balance and OPEC will still be deciding in May whether to extend production cuts for a further period (and by how much).
Needless to say, all charts are still in negative territory after such a sharp turnaround and I am watching the 1H/15m for the first signs of any return to buying - but it could be a longish wait and, of course, we may still see some continued weakness first!
Whilst my own account equity "stockpile" didn't see any build from yesterday's move, it didn't suffer any draw either. So far this month, as at 19.04. we have had only 12 trading days and a long holiday weekend. I have made 12 trades so far, all long. Of these, only one was a small loss of 9 pips, and that was kind of technical as I didn't want to take an overnight risk and closed out and re-opened the following day. So I am reasonably happy about that.
My main problem has been closing positions too soon, which is due to this phenomena that oil moves further per "leg" than I am used to from forex day-trading. I need to work more on my exit strategies! I guess this is also partly psychological as this is only my second month in oil and I am dedicated to the principle of "earn while you learn" so maybe I am too eager to take profits.
Whilst it is often said that it is "never wrong to take a profit" - it can actually be very wrong in the long term. Because it destroys the risk/reward ratio that should underpin anyone's trading strategy! By cutting short the profits but not simultaneously adjusting stop-loss policy, then eventually your losses will start to degrade you profit potential and even destroy it totally. It is extremely important always to keep in mind that money management is not about one particular trade, but about an overall level of performance over a number of trades.