How I trade crude oil

This is a discussion on How I trade crude oil within the Commodities & Money Markets forums, part of the Markets category; I guys, this is some though about a general oil trading approach. Would be glad to exchange with you The ...

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Old Dec 20, 2016, 5:50pm   #1
Joined Dec 2016
How I trade crude oil

I guys, this is some though about a general oil trading approach. Would be glad to exchange with you

The goal of this post is to tackle different aspects I find important in oil investing. What trader or investor should know and where to look at. But each point in there could be way more developed and should be used in a proper context.

Chart on https://oiltrading.blog/

(1) A multi-factor approach
(2) Observations about oil
(3) Oil Investing basic approach

(1) Multi-factor approach

Oil is wonderful for the generalist trader. Depending on your investment horizon, you have to weight different elements and signals before taking a decision, as for me it generally goes this way:

Short-term: importance of chart analysis / technicals
On the short-term oil is a very volatile asset. But there are strong and “respected” indicators that can sometimes help. I often use technical analysis in a ranging market or “slow” day, without any important news or data release.

What I use the most: support & resistance, Bollinger bands, RSI

Ex in this trade, indicators where showing overbought conditions, and it turned out to be profitable: 13.12.2016 – OPEC Deal fallouts: Short Trading Opportunity

Medium-term main risk: geopolitics
Major risk when trading on a week or month horizon is that unexpected event happens in the world.

I.e: war in Middle East, riots in Saoudi Arabia, sabotage in Nigeria, Trump tweets

On the long-term fundamentals tend to keep things balance and if there are no huge change in amount of supply/demand linked to the peculiar event the price action has time to mean-revert.

On the short-term the risk is lower (day trading, scalping). But always there

Long-term trend: Fundamentals
Commodities investing is all about demand and supply on the long-term. Why did we recently experienced a 70% drop? US Shale oil disrupted the fragile balance in the oil market.


The importance of the US Dollar
Oil is traded in dollar. As a result, it is inversely correlated to this currency.

This inverse correlation is especially clear when there is a long-term trend. In 2003 – 2008 the dollar was in a sustained bear trend while crude oil witnessed one of its strongest bull runs. Then the trend changed direction at the same moment during the financial crisis: rally in dollar and fall in oil.

Yet on the short and medium term this correlation may not always hold. The context and/or other news may drive oil prices regardless of the direction of the dollar.

(2) Observations about oil

Seasonality (US)
Spring: usually lower demand. Indeed refineries schedule their repairs during this period, roughly 25% close

In May the maintenance season ends -> refinery oil process increases -> stock level decreases -> price increases


Decay in Producer Data / Production Data

In the US for instance, we have been assisting to a fall in oil rigs in 2015 , yet the production began to fall in the second semester of the year. There is a latency period to take into account

Oil loves Great Movements
Oil has been historically prone to impressive upside/downside move

For instance, over the past 30 years (except for current), oil has experienced 6 big lows, and all were in V-shape (see graph above).

(3) Oil Investing basic approach

Technicals on the short-term
Look for: trading range, support and resistance on the short-term

Consider fundamentals on the long-term
On the long-term Even if you identify a strong technical signal, a fundamental signal will have the upper-hand.

When to expect volatility: fundamental data such as production, rig counts or inventories data
Volume usually increase a lot around those release. Hard to trade and can break a trend.

Usually main drivers of the prices.

Sentiment: Commitment of Traders report
To see open interest in oil futures. Good indication of market sentiment.

Sometimes really useful when adopting a contrarian approach.

Geopolitics: the x factor
OPEC meetings, Russia, Iran sanction-related meeting, Trump declarations…


Another example thoughts: https://oiltrading.blog/2016/12/14/o...f-convictions/
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Old Dec 21, 2016, 7:23pm   #2
Joined Dec 2016
OilTrading.blog started this thread Hi guys,

Not so much reactions. Will use this thread as a "trading" journal.

I am in the green again on my short on Brent https://oiltrading.blog/2016/12/19/w...he-short-term/

I still see some downside so i added to my position. This is a medium-term trade and I don't care too much about the noises (if there is a spike back up)

It is all about fundamentals and for now the situation is very shaky. Would reconsider in January but even with the implementation of OPEC deal I am not very bullish.
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Old Dec 22, 2016, 7:52am   #3
Joined Feb 2012
Found the free Investor Series 1-10 informative and educational. Free, of course, is used to introduce other paying services. However, no hard sell and spam box still empty after some months.

http://oilprice.com/

oil-investor-series.png
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Last edited by Phylo; Dec 22, 2016 at 8:22am.
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Old Dec 22, 2016, 10:21pm   #4
Joined Dec 2016
OilTrading.blog started this thread Thank you for the link.

Today the market was very volatile but I found an nice entry point for a short-term short.
https://oiltrading.blog/2016/12/22/2...-todays-rally/

I will add to the position if me move down to $55 (Brent)

I got some tight short-loss, the market is currently trying to find a new range and seems to be unsure about its direction on the medium-term
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Old Dec 27, 2016, 4:59pm   #5
Joined Feb 2016
I usually trade EURUSD most of the times however I look at commodities too for some while but all these commodities including oil and gold mostly seems to be bearish. Still many investors / traders found it a good opportunity to make money by selling them short.
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Old Jan 30, 2017, 7:55pm   #6
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Quote:
Originally Posted by progix View Post
I usually trade EURUSD most of the times however I look at commodities too for some while but all these commodities including oil and gold mostly seems to be bearish. Still many investors / traders found it a good opportunity to make money by selling them short.
Completly agree with you.
Just posted a new article: for Q1-Q2 I see a lot of downside for oil
https://oiltrading.blog/2017/01/30/o...tion-analysis/

Why bearish for now?

The recent price action was overwhelmingly a result from political manipulations from OPEC. I won’t get in too much details but the oil producing countries have a budget to manage and Saudi Arabia / Russia were strongly enticed to push oil price higher (both were in terrible situation with a price under $40 a barrel). So we did get an agreement.

Oil went up and is now sitting above $50 a barrel. This movement is natural and reflect new expectations concerning the fundamentals. Yet those are still expectations and despite the implementation of the cut, I think fundamentals remain so-so (at best) and are not fully priced in the market. I don’t know when, but if I am right in a near future production and inventories data should send price lower.
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Old Feb 3, 2017, 8:07pm   #7
 
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Oil is still ranging hard.

I am a little worried due to saoudi aramco coming ipo. I think there will be some sort of market push and no real decline because of this. Too many people need oil higher and this is bothering me despite my fundamental convictions. Still holding my shorts but will sell quickly at previous resistance level.
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Old Feb 22, 2017, 5:41pm   #8
Joined Dec 2016
OilTrading.blog started this thread Why I think oil is going down (breaking the range) on the medium term

Oil market has been trading sideways since the OPEC cut agreement. I made several calls on the short side which turned profitable but the market quickly went up afterwards. Today I am not calling a short-term movement: I think we will be entering a new medium term trend to the downside

The recent price action was overwhelmingly a result from political manipulations from OPEC. I won’t get in too much details but the oil producing countries have a budget to manage and Saudi Arabia / Russia were strongly enticed to push oil price higher (both were in terrible situation with a price under $50 a barrel). So we did get an agreement.

Oil went up and is now sitting above $50 a barrel. This movement is natural and reflect new expectations concerning the fundamentals. Yet those are still expectations and despite the implementation of the cut, I think fundamentals remain so-so (at best) and are not fully priced in the market. I don’t know when, but if I am right in a near future production and inventories data should send price lower.
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