Ot sure if chart photo pasted successfully….
Charts show a dramatic upturn in price today. This started with a sharp downward move at exactly 1300hrs, then a sustained drive upwards from 1301hrs.
Two observations. Firstly, the precise timing of this event at the exact time of 1pm of all times suggests that some scheduled fundamental event or announcement or perhaps some timed market data release (futures?) occurred. The specific hour and precision of this raises the question whether this could have been anticipated either as a unique as a regular routine event, maybe on economic calendars.
Secondly, I would personally never be shorting something intra-day when its D1 chart is in such a consistent uptrend. Yes, I know you can always find an uptrend and a downtrend simultaneously in different time-frames on the same market: but D1 is king.
Yep, this was there in economic calendars as a significant news event. It was the OPEC+ meeting where it was announced that oil production will be increased to 648K bpd (432K bpd previous) for JUL & AUG.
Thanks @darthdimsky.
I did not know this meeting was taking place but I’d like to think I would have known if I had been in an oil trade.
The other thing I would say is that I would have thought an increase in oil production would depress the oil price - which also just goes to show how tricky it can be to trade the news.
Believe the spike in the price is just markets reacting with confidence after the recent uncertainty stemming from:
- Talks of exclusion of Russia from the OPEC+ meeting
- Sanctions imposed on Russian oil by the EU a day or two earlier.
- Lowered US oil inventories
- Possible effect of US political debating of selling their oil on the market for the high prices or restricting it to domestic use only.
Because it honestly does little to cover the 1-1.5M bpd Russian oil suspended as a result of the war. I think it’s bound to go higher the onset of winter, China opening up and the continued dwindled refinery production as a result of earlier pandemic slowdown.
I agree with all your comments. Re: shorting - agree with you that shorting a market which is up-trending on longer time-frames is v risky. The position was a hedge cos of the significant down-trending on previous shorter time frames. The fact the order was filled with the very lowest of the low prices of the day before the price rocketed up was ironic and sadly typical!!!
I agree that having your finger on the pulse of breaking news is a real advantage in trading.
Still, on the other hand, oil prices so choppy at the moment that, if you look at the weekly charts, pretty much any position you open is bound to win or loose at some point in the future. Personally, I think oil has either reached or about to reach its second peak, which I reckon will be around the same level as it’s first peak - or, if it goes a lot higher will not stay v high for long.
Look at it this way. There is enough oil being produced in the world, but there’s a lot of noise / anxiety re; who’s producing it / sanctions etc. At the end of the day if prices go too high a solution will be found to this, even if it’s in Russia’s political favour. If there becomes a genuine demand/supply issue OPEC will pump more oil, Venuzuela and Iran will be forgiven and oil exploration will increase. Then there’ll prob be a recession and it’ll hit zero again! Got to remember oil is the ultimate cyclical commodity.
I feel your pain mate.
The dynamics and geopolitical landscapes have changed significantly from previous instances to generalise observations IMO.
That’s historically been the case. For the first time the past few years demand outstrips supply (red highlight), while projected demand is expected to hit levels in 2019 (green highlight)
Disagree. The EU’s announcement on oil sanctions is in direct opposition to currying Russian political favor. If anything, announcing it early is a favor to Russia as helps mitigate some of the shocks. This announcement is probably unprecedented in recent history and is a huge blow for Russian energy exports.
With China expected to come back online and that might take up some of the Russian oil, but it will not hit it’s pre-pandemic manufacturing/production levels. Key contributing factors are the depressed CN R/E market and high global CPI & PPI levels that will drive down demand for CN exports. The CCP is desperately trying to issue bonds to shore up investment capital to stimulate the economy to prevent the situation in the news article below from ongoing:
Why would OPEC pump more oil? If anything Biden’s pissing off Saudi and the UAE with his dovish approach to Iran. Obama pissed them off first by unilaterally easing sanctions on IR, despite the UAE halting lucrative IR business to comply with sanctions. When was the last time the UAE and Saudi refused to pick up a call from an American president?
Plus the Arab countries don’t rely as much on the US alone for trade anymore. The US may not be able to strong arm the Arab nations to push for production like they did in years past. They have more diversified sources of revenue, and in the case of the UAE more diversified industries. The UAE for e.g. has been approaching a number of countries for Free Trade Agreements and even signed one with Israel a few days back. This is another unprecedented turn of events in the Arabian peninsula.
And It’s not that they can’t increase capacity (1.8M bpd for SA & AE combined):
But why would they if they are meeting their targets? It’s the non-Arab countries that aren’t meeting their OPEC quotas atm.
It’s not only the uncertainty of supply. No matter how much oil is produced there’s got to be a way to refine it. The effect of the pandemic wiped out a significant chunk of refining capacity. The Russian war didn’t deprive the world of ~1Mbpd in Russian crude supplies. It disrupted ~1M in refining throughput. This is even more significant. This, I believe, is also an unprecedented series of events.
In 2021, refinery throughputs recovered by 3 mb/d, after a fall of 7.2 mb/d in 2020, well behind demand growth. In 2022, the growth will accelerate to 3.8 mb/d. Despite tight product markets and relatively strong margins, we see limited upside potential for 2022. The global refining system lost 2.8 mb/d of capacity in 2020-21, mostly from the fleet of operating refineries in the US, Europe and Asia, rather than from the roster of long-term mothballed/underutilised assets. The bulk of new capacity projected for 2022 will not materialise until the second half of the year. Kuwait’s mega-refinery Al-Zour, which accounts for half of 2022 net additions, may take longer than expected to reach commercial operations, due to its size (615 kb/d). Nominal refinery margins look very healthy, but higher natural gas costs and, in Europe, emission allowance prices are a substantial drag on real earnings for refiners.
TDLR: Demand is expected to hit ~100M bpd but refining throughput is expected to be at ~82M bpd. Rest of demand will have to be met with inventories.
True. there’s significant money being moved into fixed income assets already. The NFP numbers today only confirmed the impending rate hike. The money’s already starting to move from equities to bonds.
Data tables and italicized fonts from the IEA oil market report for FEB (more recent ones are paid):
Thanks @darthdimsky you’ve given me much food for thought. I’m goimg to take some time to digest it and get back with some comments. Alot of reasons to be bullish about oil at the moment. Interestingly, I’ve noticed over the last week high grade copper price has become uncoupled from oil which is unusual. You’ve included an article about copper inventories as well, which i’m about to read.
Sorry, I should say metal inventories.
[Opec agrees to accelerate oil production following US pressure](https://Opec agrees to accelerate oil production following US pressure)
Honestly didn’t know that but the charts seem to think they’re correlated.
- The first correlation is just me fooling around with Copper and the Invesco Base Metals Fund. Strongly correlated.
- Second correl is Copper and the Invesco Energy Fund
Based on the strong correl b/w copper & base metals it made sense to compare base metals & energy to the commodities fund, all three of which are Invesco
- The first correl indicates just how much energy prices have impacted the commodity Index, as opposed to base metals (and copper), represented in the 2nd correl. This could explain the divergence you noticed b/w metals & oil.
Historically though Copper has had strong correlations with (positive) emerging economies and (negative) bond prices (not yields, which have an inverse relationship to price). What that basically means is that:
- Copper’s largest importers and exports are emerging economies, especially China, which by far is the largest importer of copper worldwide. So that also implies that it has a strong relationship to the Han Seng.
- Bond prices go up (and yields down) when the economy is weak. So the inverse relationship basically means that when copper is low the US economy isn’t doing so great.
Copper Imports by country. Source
Copper vs emerging economies & US 10Y Bond Price
I was a bit tired at the time and forgot to include an explanation to the last graph:
This one maps the 1 year close prices for a NASDAQ Copper Index, US 10-Y Bond prices & an emerging market fund. The first correl is between Copper & US10, which is mostly negative. The second correl just below it is b/w copper & EEM, which shows a very high positive correlation for most of the period.
Instruments used in the charts for your own research/analysis are as folls:
- NQCIHGTR: NASDAQ Copper HG Copper Index TR
- DBC: Invesco DB Commodity Index Tracking Fund
- DBB: Invesco DB Base Metals Fund
- DBE: Invesco DB Energy Fund
- US10: US 10 Year Government Bonds
- EEM: iShares MSCI Emerging Index Fund (representative of emerging markets)
If you want to compare Chinese equities with the listed instruments you can use the FXI (iShares China Large-Cap ETF), like the chart below, which shows the strong 5Y positive correlation b/w Chinese equities and copper:
Notes:
- The correlations used for all the charts are 60 candle period (~2 month) for the 1Y and 12 candle period (~3 month) for the 5Y above. No method applied to the durations. I decided to use it based on the stuff I read. But there may be better periods for a more meaningful analysis.
- The DBC was used as the commodities index because I couldn’t find the Thomas Reuters Jeffries CRB Index, which is the more widely used index for commodity analysis. It was my first time using trading view so maybe it’s listed somewhere and I couldn’t find it.