Crude Oil and oil markets

anon46773462 · May 25, 2017, 2:53pm

So we have the confirmation of the extension to the OPEC + deal for a further 9 mths. This was followed by a significant sell off partly due to a lack of increase in the actual amount of the cuts. Also Libya and Nigeria are still excluded from the deal due to their domestic problems. There are also doubts (of course) about the continuing degree of compliance amongst members…and of course the continuing growth in US shale production towards the 10 mill b/d level.

Today was a special day, but not because of OPEC. Apart from closing out a last long trade before the OPEC meeting, today was dedicated to the memory of Finland’s past president, Mauno Koivisto, whose State funeral took place in Helsinki today. A veteran of the 2nd World War, Chairman of the Bank of Finland, Minister of Finance, Prime Minister and 9th President of Finland.

The markets had a good shake-out today with a drop that took us right back below even the Daily 200 SMA. This is good. Now we will see the price settle and move according to a new set of conditions and market forces.

anon46773462 · May 26, 2017, 1:38am

After the dust settles overnight on yesterday’s OPEC meeting’s outcome and the subsequent drop in crude oil prices, it is easier to see where we are now.

In a way, it was a classic “buy the rumour, sell the fact” event. The market had been taking prices up based on strong indications that the current agreement to cut production levels amongst both the OPEC nations and other non-OPEC countries (incl Russia) would not only be extended, but may well be extended even further than the end of this year. In fact, it was extended by 9 months to March 2018. So why the sell-off?

Since this extension was already fully anticipated, having been already publicly agreed in principle by many participants prior to the meeting, many watchers (including me) were anticipating an additional surprise “extra” from OPEC to excite the market and give it a good push upwards - but it didn’t come. I was anticipating an extra boost from a surprise increase in the size of the cuts or even by the inclusion of additional participants. But I got a gut feel before the meeting that maybe this was not on the cards afterall, and closed out my long “bet” on the outcome. I am now flat.

But the only conclusion was that a continuation of the same reduced production levels for a further 9 months would be sufficient to clear the current global oil glut and bring the market back into balance. But since the current agreement has failed to produce any significant reductions in stocks so far, and the US shale producers are still increasing strongly their own production levels, there is a feeling that little has changed - or will change - so, of course, disappointment means sell…
So what are we left with?

Precious little I think. We are now in exactly the same pincer movement that has dominated markets since last December: The same OPEC agreement will put downward pressure on stocks and upward pressure on prices - which encourages US shale producers to increase their own production and put upward pressure of stocks and a consequent downward pressure on prices.
Key points, I think, are:

That the principle OPEC ambition is to bring the market back into balance, not primarily and specifically just to push up prices, which would be more of a consequence of a balanced market rather than an objective in itself. Therefore any slow readjustments in the supply /demand equation do not necessarily equate with significant rises in prices.
Any significant collapse in prices would approach breakeven cost levels and start to retard production in US and elsewhere, which would accelerate the attempt to reduce oil stock levels globally.
If and when the extended OPEC/NOPEC agreement starts to balance oil stocks, will we continue to see the same, exceptional, level of compliance amongst the participants of the agreement - or will we see the cracks starting to appear and undermine the success of the project? Who will be the first with a false start to increasing pumping as the agreement ages.
And what happens after the agreement, next March. Do we return to a free-for-all with everyone pumping like mad to gain/regain market share or with some other form of market regulation.

The only conclusion I can see at present is that we continue within the same broad range with a cap over price extremes on the upside from the US shale production and a floor supporting prices by the breakeven cost levels at which production taps are slowly turned off…

anon46773462 · May 28, 2017, 2:32pm

Following the OPEC meeting on 25th May, it would appear that the market will remain largely focused on the supply side for the foreseeable future.

At the 172nd Meeting of OPEC, the Member Countries agreed to extend their current production cuts for a further 9 months as from 1st July. Directly after this meeting OPEC held the 2nd OPEC and non-OPEC Ministerial Meeting with their counterparts from the non-OPEC oil producing countries that have been participating in the cuts. Together, these countries have agreed to continue reducing production levels by a total of 1.8 mill barrels/day. Compliance with the current agreement has been high, especially amongst the OPEC member states. It remains to be seen if this continues throughout the next 9 months.

The 14 OPEC Member Countries (now including Equatorial Guinea) are:

Algeria
Angola
Ecuador
Equatorial Guinea
Gabon
Iran
Iraq
Kuwait
Libya (Excluded from the cuts due to internal conflicts)
Nigeria (Excluded from the cuts due to internal conflicts)
Qatar
Saudi Arabia
United Arab Emirates
Venezuela

and the 10 non-OPEC parties are:

Azerbaijan
Bahrain
Brunei Darussalam
Kazakhstan
Malaysia
Mexico
Oman
Russia
Sudan
South Sudan

The aim of the cuts is to reduce the global excess of crude oil inventories to the level of the 5-year average and to support price levels that are consistent with encouraging fresh investment in new exploration and production and relieving pressures on oil-dependent national budgets.

The main contrary factors working against the impact of these production cuts are increased production from other producers outside the agreement, mainly the US, and weakening global demand for oil products.

A see-saw time for sure lies ahead…

anon46773462 · May 31, 2017, 8:51am

For some time now, oil commentary has been narrowly focused on two opposing supply-side components: OPEC’s production cuts agreement and the US shale oil boom.

But there is maybe a third major factor that is not highlighted so much, but may have a major impact on oil prices in the near future - and that is China.

China’s own oil production is peaking and expensive to extract, and its domestic consumption vastly, and increasingly, exceeds its own production. But it is the scale of both China’s production and its consumption that makes this significant. Both are huge and any significant changes in either of these will have significant implications for the world oil markets…

China as a producer

China is one of the world’s five largest oil producers, along with Saudi Arabia, the US, Russia, and Canada. But its fields are depleting, ageing and increasingly expensive to pump. Today’s lower oil prices also reduce producers’ incentives to boost drilling and increase production.

As in the US, China also has large potential shale oil reserves but exploiting these is hampered by local legal, regulatory, and ownership facors. Also, geologically, China’s shale oil is located in rock layers that are more ductile and less “fracable” than the brittle marine shales found in the US.

China also has offshore drilling projects but their potential production is only likely to slow down the rate of reduction in conventional drilling rather than replace it.

China as a consumer

China is also a massive importer of crude. Its dependence on imported oil started in 1993 when demand began rising faster than its domestic production. According to the EIA, China became the world’s largest net importer of petroleum by the end of 2013and in 2015, imported a record 6.7m barrels a day.

China’s oil sector

China’s oil industry is dominated by its state owned oil companies, mainly China National Offshore Oil Corporation, China National Petroleum Corporation, China National Refinery Corp, and Sinopec. These companies have responsibility for developing the country’s domestic reserves, building and operating pipelines, managing China’s downstream sector, and filling its strategic petroleum reserves (SPR). China has one of the world’s largest strategic oil reserves. These global strategic petroleum reserves (GSPR) refer to stockpiles of crude oil held for national security during an energy crisis.

Investment by these companies has largely been targeted towards exploration and development in other countries that had oil fields but not have funds or technology to develop them.

In 2009, China also completed its first critical oil pipeline, the Kazakhstan–China oil pipeline in Central as part of a larger overall trade expansion with the Central Asian region

[U][B]Implications

[/B][/U]The huge impact of any changes in China’s growth is understandable when we consider that Chinese oil demand is expected to expand by 400,000 barrels per day to 12.3 million barrels per day (mb/d). This Chinese growth alone is essentially almost one-third of the total global demand growth, estimated at around 1.3 mb/d this year. So any softening in demand will be significant in a global market already saturated with oil.

On the other hand, if China has a stronger economic performance, it could also boost momentum to a tightening oil market. With expected strong demand figures and a falling domestic oil production this translates into increased need to import more crude to make up for the shortfall.

anon46773462 · June 1, 2017, 5:54pm

Plenty to talk about and trading for the new month is off to a plus start…

…but a more urgent task presents itself - learning this totally different site! Decided to mirror the occasion with a new look to my own charts too!

Not trading tomorrow as its Friday and will be back on Monday in full swing (if I don’t get lost in the new BP corridors…)

anon46773462 · June 4, 2017, 6:27pm

After a good perusal though this new version of BP I have to conclude that I no longer feel I belong here at all. It lacks all its former personality and feels totally sterile. I no longer feel any inspiration to post here. The pages are totally bland and the details of the posters almost without any identity beyond a meaningless username and a miniscule avatar. All character has evaporated from the site.

So I am terminating this thread here.

VictorS · July 2, 2017, 1:53pm

I just found this forum. I was not a member of this site, but joined because of this board.
Manxx, as the originator of this board, you should return. I have found this information extremely valuable. You are doing an absolutely outstanding job with your posts. As someone attempting to transition to crude oil trading more frequently, I have taken so many notes. If you do not return, I’d like to thank you for all that you have shared here!!!

anon46773462 · July 2, 2017, 4:05pm

Are you serious, VictorS? I just got an e-mail about your post above - thank you for your very kind and encouraging words!

I am not by any means any kind of veteran in oil trading but I am still finding it both fascinating and profitable. I confess that I have just started posting this weekend elsewhere, but if you are really interested in sharing some thoughts about Crude OIl then I will put my thoughts and discoveries here.

If you have been following my posts here then you will have seen that I am following two methods here. In addition to my own charts I am also following the direction of the “High-5” method promoted on this site by Turbonero.

To bring you up to date with the High 5 situation, it just closed its 5th consecutive win on 28.6. with a profit of 402 pips and is now long from 44.42 (WTI) - currently an open profit as at close 30.6. of 179 pips (stop currently at 42.605 being low from 26.6.)

I just posted elsewhere my views on where we stand right now after last week’s strong rally ahead of the “extended” weekend to include US Independence Day next Tuesday. and I’ll copy it here at the end.

If you really wish, and find it useful, then I will of course naturally continue posting my stuff here - I prepare it anyway so its no problem - just don’t hold me to any views!

As I state below this Daily chart is not a trading chart - I just compile there all the indicators that seem to be widely used and it does seem to give a visual on where we are at any time. My own charts are bullish from 4H downswards but this Daily is pointing more to just a retracement at the moment. Maybe up to 49 dollars or so before we could say that we are starting a serious, longer term bull trend as such. I dont feel the longer term underlying fundamentals changed at all last week so I am very wary of the upside potential here unless next thursday’s EIA figures point to a possible more significant shrinking in US production output. I don’t see that happening if drilling is still profitable, afterall, we are still talking of US reaching record production levels and in line with Mr Trump’s ambitions to increase all hydrocarbon output, be it gas, coal or oil…

But the US upstream industry comprises many private companies and their breakeven price varies a lot. They will drill if there is a profit and shutdown when the price is too low.

So here’s where I am right now:

Last week was a firm, consistent upward move which, in my opinion, was generated by two things:

The week produced first signs that prices approaching USD 42 per barrel are starting to edge below the breakeven level for many conventional and even some US shale oil producers. The EIA figures on Wednesday revealed a slight drop in US weekly production and the Baker Hughes US rig count on Friday evening showed the first drop in 23 weeks - albeit only by 2 rigs.
The market was apparently already heavily short and the above -mentioned data prompted short-covering/profit-taking ahead of an exceptionally long weekend with the US Independence Day holiday on Tues 4th July (preceded by Canada Day on Mon 3rd).

But the question is will the upside be further extended beyond Tuesday?

The core fundamental issue is still the global excess in crude oil stocks and that has not changed. The OPEC production cuts are still being largely neutralised by increased production elsewhere in, for example, the US, Libya and Nigeria. Also, on the demand side, projections are being lowered across the globe by many analysts.

So, I think last week’s upmove was more a bounce off the bottom than a start of a bull move. Further price increases will induce further production increases which, unless OPEC decides to deepen the level of production cuts, will again cap prices as producers start to lock in levels.

The Daily chart below is NOT a trading chart. It is just a collection of major indicators that are variously used by traders which helps to put a broader picture on where we are - from the bottom upwards as follows:

a) RSI is neutral
b) Momentum has just turned bullish
c) We are still under the 50% Fib retracement of the last move (at around 47.00)
d) We are still under the Ichimoku cloud
e) We are still under the 200SMA

I would expect to see Monday as a quiet trading day with a range held by roughly 45.75 - 47.00.

The rest of the week will probably depend on the EIA release on Thursday, after the holiday, as this was catalytic in the rebound last week and US production is perhaps the most sensitive issue around at the moment.

ForexGump · July 2, 2017, 5:22pm

Export opportunities to Asia and big U.S. summer driving demand, which are forecasted to hit a record over the July 4 holiday weekend, are seen as the primary drivers for a drawdown in stocks that remain above seasonal averages.

July is usually a big month for drawdowns. According to the U.S. Energy Information Administration, inventories of crude oil have dropped by an average of 2.9 million barrels per week in July over the past 5 years.

There’s also the opportunity for U.S. crude exports to Asia. After prices made it expensive to ship U.S. supplies offshore in recent months, there’s now increasing demand from Japan and South Korea. This demand could help reduce excess supply.

If inventories do not draw down though, we probably won’t see higher prices by the end of this year.

anon46773462 · July 2, 2017, 5:51pm

Yes, it is interesting to note that US crude oil and petroleum inventories are expected to fall and that they are so widely focused on. But they are not the global figures - they are just the most visible!

In fact, the US is still a net importer of oil, partly because many US refineries were designed to work on heavy crude and shale oil is unsuitably light.

It was interesting to also read reports that Saudi Arabia may even be reducing its imports to the US as a way of further increasing the drawdowns in the EIA reports and helping to firm prices…sneaky!

peterma · July 2, 2017, 7:13pm

Hi Manxx

Good to see you post here again.

I don’t trade oil, Euro is my thing, but your input is very interesting.

The new site is far from intuitive, only the other day did I find the stuff low down on the homepage but hopefully the young designers will get their act together.

Haven’t seen Turbo about in a while, but maybe when I get used to this new look I’ll visit a little more.

anon46773462 · July 2, 2017, 7:59pm

Hi Peterma!

Good to hear from you, too!

I hope so too! I still find this so impersonal - leaves me cold compared with the former version - but that is the way of the world in most things, it seems.

I look forward to that…

anon46773462 · July 2, 2017, 8:06pm

We were talking a few posts back about US imports and exports of oil products. Here are two interesting charts from the EIA going back to 1991:

US imports

US exports

Amazing growth in export volumes in recent years.

VictorS · July 4, 2017, 2:40am

Manxx, I am very glad you have decided to post here again! As I’ve stated, I only joined this site after reading your board recently. I think it’s now obvious that others are finding your posts useful and informative.
Once again…I am glad your back.

FundamentallyFlawed · July 4, 2017, 6:00am

Where the heck have you been Manxx!
Hope you stick around. This forum is so depressingly insipid it needs a massive dose of luuuuuuuurve

anon46773462 · July 4, 2017, 7:06am

Yesterday did indeed turn out to be a quiet one and seems to have traded quite technically, achieving the anticipated range of:

The days’ range with my broker was 45.89 - 47.07 but this varies slightly with different brokers and with the futures market itself off which the CFD’s are priced. In fact, the pricing of CFD’s is something that maybe I could investigate more and write about here.

But I would add here that this thread is not intended as a “follow-me” trading method or advisory service. I want to highlight the major factors currently affecting the market and its possible overall direction, look deeper at the countries and organisations that make up the market and some of the technological aspects of the oil industry.

If anyone is looking for actual trade suggestions then I noticed that another thread has started on BP offering just that. I have no idea who the OP is (Tradersonflow) or whether his suggestions are worthwhile but he is offering daily trading suggestions. You will find it here: Crude oil Daily Plans . But I emphasise that I have no idea about its worth or what the suggestions are based on and this is by no means any kind of personal recommendation. I always recommend that traders develop their own methods and plans.

Today is the US Independence Day and note, therefore, that this week’s EIA release (which is currently very influential on oil prices) is moved from Wednesday to Thursday at 15.00 GMT. However, this evening at 20.30 GMT we have the API inventories data. This may well impact on tomorrow’s prices due to the delayed EIA data this week, but the release details do often differ substantially from the EIA data and therefore reaction is often muted whilst waiting for the subsequent EIA release, which is usually the next day (on Wednesdays).

CURRENT:

The current turnaround from the low prices of the last few weeks was catalysed by the slight drop in U.S. oil production by 100,000 bpd reported last week by the EIA, which was interpreted as indicating that we are eating into the profitability of the marginal shale producers. A drop in domestic gasoline stocks also helped the rise in prices in spite of an increase in actual crude stocks by 118,000 barrels.

I am sure that this up move, once started, also prompted short-covering and profit-taking ahead of the long weekend and because it was both a month-end and the end of the 2nd quarter accounting period.

However, is there likely to be further follow-though this week? The traditional increase in petroleum consumption during July 4 week may well help but I am not sure whether that will be reflected in this week’s release on Thursday or the following week’s Wednesday release.

But the US is certainly not looking to reduce its output nor are other producers including the OPEC members Libya and Nigeria, who are exempted from the OPEC/NOPEC production cuts agreement because of the internal problems.

It is also worth noting that Goldman Sachs has reduced its three-month price forecast for WTI oil from $55 to $47.50.
Unless either the US and others reduce their production levels or OPEC decides to increase its level of cuts, It really seems that we are stuck in a range where the lower end around 40-42 dollars starts to hit the breakeven point for some drillers, who then turn off the taps, and an upper end around 50-52 dollars, where more drilling comes on stream and companies look to lock in their prices.

It is also worth keeping an eye on the situation in the Middle East for at least three reasons:

There is a growing tension with the situation with Qatar (and Iran) and Saudi Arabia and its allies. Any major fall out could have a big impact on prices.
The OPEC/NOPEC countries have so far complied well with the terms of their agreement, but if reduction in market share and domestic financial pressures start to cause problems then the compliance may start to fall apart.
The Saudi Arabia IPO for Aramco (the state-owned Saudi Arabian Oil Company, valued at anywhere between US$1.25 trillion and US$10 trillion, depending oil price) is a major deal for next year and it is crucial to Saudi Arabia that the oil price is favourable for it to achieve their objectives in moving the entire country away from dependency on oil revenues in thefuture (I want to write more on this in another post).

In addition to these supply side factors, it is also worth watching the demand situation, particularly in China which is the largest net importer of crude oil. Any change in China’s economy has a noticeable impact on oil demand.

Truly, trading Crude Oil keeps you focused on a vast range of global events!

High-5 trade:

Entry: 44.42, stop: 43.30 (low from 27.6.) Current position at close 3.7.: +261.5 (47.035)

anon46773462 · July 4, 2017, 4:24pm

Just a possible warning, I wrote earlier that:

However, I am sure I saw a post there just a while ago where the OP stated that the chart template he uses is a product that he sells. That post seems to have disappeared now, so either I imagined it or it was removed. Either way, if you are following those trade recommendations, be wary and exercise the caution that should always be present when considering 3rd party advice…

anon46773462 · July 4, 2017, 6:35pm

SAUDI ARABIA

Saudi Arabia holds the second largest proven oil reserves in the world at around 22 per cent of global reserves, and is the largest exporter of oil. It is geographically a large country with a population of over 32 million.

It is one of the founder members of OPEC and its most influential member state.

Saudi Arabia’s economy has been successfully dependent on its energy sector for many years and, according to OPEC’s site, “the oil and gas sector accounts for about 50 per cent of gross domestic product, and about 85 per cent of export earnings”.

However, in recent years Saudi Arabia, like other energy-dependent states, has felt the negative impact of low oil prices on its state revenues and this has caused problems with its planned state expenditure.

Its oil industry is dominated by the state-owned Saudi Arabian Oil Company, ARAMCO, which is the world’s biggest energy firm, producing all of Saudi’s 10.25m barrels a day, which is more than double that of Exxon and Rosneft in Russia.
Saudi Arabia is currently considering a partial privatisation of 5% of ARAMCO via an IPO (Initial Public Offering) either in New York or London. Although this move is stimulated by the reduced revenues from low oil prices, it also reflects Saudi’s aim to diversify its economy away from energy in the future. The funds raised by this IPO will go a long way towards the achievement of this diversification.

This deal is huge for Saudi Arabia and the valuation of the company for the issue is extremely important and highly dependent on the level and prospects of oil price. For this reason Saudi Arabia has a very strong reason to do everything it can to achieve and support a firm level of oil prices. But it cannot do it alone and if it needs further production cuts it will remain to be seen whether other OPEC countries will be prepared to accept further reductions in both income and market share.

http://www.operationworld.org/files/ow/maps/lgmap/saud-MMAP-md.png

anon46773462 · July 5, 2017, 7:17am

I read yesterday one interesting viewpoint concerning the possible motivations behind the Saudi Arabian ARAMCO IPO!!!

ARAMCO is the biggest energy company and possibly the most valuable company in the world. Being state-owned it owns/controls 22% of the entire global oil reserves.

Whilst that may make Saudi Arabia extremely valuable, it does not make it rich unless it can convert that oil into money - and as we all know, if you own a lot/too much of something you cannot just sell it all down on your local street market.

What if SA is taking a long term look down the road and sees that oil will soon only be used in production processes and no longer as a major fuel in transportation or heating fuels, etc? What if then the bottom will have totally dropped out of oil demand and its value and all you are left with is a huge sticky mass under the ground that is barely worth the cost of extracting it?

So what do you do if you own a company that owns a huge amount of black gooey stuff, that is currently very valuable, but cannot be sold fast - and whose value is going to decline repidly in the coming years?

Easy: if you can’t sell the oil, sell the company…

anon46773462 · July 5, 2017, 8:16am

CURRENT:

First a correction! I wrote yesterday that:

I did wonder at the time why the API release was not also shifted one day, but that was what the calendar said so I believed it! But it is actually now on the calendar for tonight at 20.30 GMT.

Generally, commentary seems to be split 50/50 on whether we are going up or down from here. Last week’s bullish impact from a small drop in US output and a first drop in US oil rig count for 23 weeks is based on only one week’s data points, but if these are repeated in the EIA release on Thurs and the rig count on Fri then we will see higher values from here. And…if we dont, we won’t! ha ha!

The limited power of my small brain cell can only deduce that these figures only showed a possible baseline in effective value rather than reason for a continuing rise in price. And that was already at some 500 pips ($5/barrel) below where we are now. Brent is already back around the $50 range.

The underlying fundamental situation has not changed. There is still a global oil glut that is far above the 5-year average that OPEC wants to return to, various countries are still ramping up their production levles which is diluting the OPEC/NOPEC cuts in production, demand levels are still rather weak, OPEC members themselves are also showing strains within the compliance requirement, and OPEC itself is becoming entangled in other non-oil issues.

And on top of that, we are now right in the middle of a perceived range of lower US40’s to upper US50’s…

Conclusion? Thank goodness for technical analysis! We don’t need to decide for ourselves - let’s just see what the majority of everyone else is doing instead!

My charts (obviously) show the market in a bull trend and that excludes any thought of selling right now. My only concern is how much potential is still left on the upside. So I am trading long off the 15m chart for whatever I can get rather than sitting with a long position.

I have simplified what I show on my chart but also added, at this stage, experimentally, the Ichimoku cloud. This is a throwback to an earlier stage in my charting and somehow it got dropped along the way. At that time I was day-trading EURUSD and on a 15 min TF and it wasn’t very useful. But when applied to the Daily, 4H and 1H oil charts it does seem to give some “structure” to them, even if not used for the actual trading signals. Right now the 4H and 1H look like this:

Since I also trade the same “triple screen”, MTF approach, which is the basis of the popular 3 ducks trading system (found here), I have also added the 60-period SMA in blue dot-dash for comparative interest…

High-5 trade:
Entry: 44.42, stop: 43.605 (low from 28.6.) Current position at close 4.7.: +263 (47.05)