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Shrinking Inventories Lends Support to Oil PricesCrude oil prices have remained lacklustre and rangebound in 2024. Slow economic growth and abundant production have kept prices muted. OPEC's efforts of supply cuts haven’t helped. Neither have geopolitical tensions. Over the past two weeks, oil prices have once more started to pick up steam, supported by trend of shrinking inventory. Despite the price buoyancy, we expect prices to remain rangebound with supply and demand in balance. Yet even during these periods, positioning tactically can allow traders to harness positive gains. This paper posits a calendar spread in CME Crude Oil futures which provides a reward to risk ratio of 1.3x while remaining directionally neutral. PERSISTENT GEOPOLITICAL RISKS FAIL TO INFLUENCE PRICES While price, the options skew and IV may not reflect it, geo-political risk for oil supply has not dissipated. Geopolitics remains tense with the conflict in Ukraine and the middle east showing no signs of ending anytime soon. Cease-fire negotiations are stuck in a stalemate. Houthi rebels continue to target ships passing through the Red Sea. Conflicts are dragging on. The risk of escalation remains high. Earlier this year, Ukrainian drone attacks on Russian refineries reportedly destroyed approximately 12% of Russia’s total oil processing capacity. According to analysts , continued disruptions and attacks on Russian oil infrastructure is likely to pressure Russian production and exports. Confluence of these risk factors suggests the potential for upside risk in oil prices. Yet, IV does not reflect this sentiment. CVOL index for CME Crude Oil options is at a four-year low and skew is close to zero suggesting demand for call options remains subdued. Source - CME CVOL It is difficult to establish a directional stance based on geopolitical risks given the fragile situation. REOPENING REFINERIES PROVIDE MUCH NEEDED CRUDE DEMAND Towards the end of January, a divergence in crude inventories & gasoline stockpiles started to emerge. US crude inventories saw large buildups while refined oil inventories had large drawdowns. This suggested that while demand for crude products was strong, seasonal refinery outages meant demand for crude oil was subdued. The refinery outages were exacerbated by the cold blast in January which led to unplanned shutdowns. The impact – excessive buildup of crude inventories which led to bearish prices. At the same time, inventories of refined crude products like gasoline showed that demand at the downstream has remained strong. Gasoline inventories have fallen sharply over the past month and stand near their 5-year lows. Data Source - EIA Over the past month, though, refineries have come back online much faster than anticipated. Refinery utilization rate has surged from 80% in early Feb to almost 88% as of 15/March. Data Source - EIA Increase in refinery utilization has provided much needed demand for crude oil. Crude oil inventories have shifted from their huge buildups to drawdowns over the past week. At the same time, gasoline inventories continue to decline at a rapid pace suggesting strong fuel demand. Data Source - EIA In EIA’s weekly petroleum status report for the week ending 15/March, crude inventories fell more than expected (2 million barrels vs 900k barrels expected). The reason for the surprise – higher exports and refinery activity. This suggests that the demand for crude oil in the near term is stronger than many expected after the huge buildups in Feb. OPEC+ SUPPLY CUT EXTENSION FAILS TO ENTHUSE MARKETS At the meeting on 3/March, OPEC announced the extension of their voluntary production cuts till June. Cuts remain at around 2 million bpd, unchanged from previous guidance set in November 2023. Despite the extension of cuts, crude prices remained muted. According to S&P Global , many participants were already expecting the extension. Source - OPEC Monthly Report Moreover, the recent non-compliance of production quotas by some members has become a major concern. In January, OPEC members exceeded their quota by 139k bpd. In February, members exceeded their quotas by 208k bpd. Source - OPEC Monthly Report Most of the non-compliance is coming from a select few nations - Iraq, Kazakhstan, Kuwait, the UAE, and Gabon. Source - OPEC Monthly Report Over-production raises concerns over seriousness to production cut commitments and its long-term sustainability. It is likely that over-production and the eventual roll-back of supply cuts will lead to a higher supply of crude oil later in the year. HYPOTHETICAL TRADE SET UP In the near term, crude inventories are likely to see increasing drawdowns given the rapid ramp-up of refineries and persistently high fuel demand. Outages in Russia are also impacting near-term supply on a global scale. Yet the supply outlook later in the year is less promising. The compliance of OPEC+ supply cuts are fading. Seasonal trends show that crude inventories tend to rise during the summer. Data Source - EIA Investors can take advantage of these trends by executing a calendar spread consisting of a long position on near term CME WTI Crude Oil Futures and a short position on a later expiry. Though, the backwardation on crude oil has become steeper over the past month, it potentially has scope to steepen further. The following hypothetical trade comprising a long position on the near-dated contract expiring in April (MCLK2024) and a short position on the further dated contract expiring in May (MCLM2024) provides a compelling reward-to-risk ratio of 1.4x. A calendar spread using WTI Light Sweet Crude Oil Futures is directionally neutral. It is also beneficial from a margin standpoint. CME offers margin offsets for calendar spreads due to its relative lower risk profile of the trade. The spread requires maintenance margin of just USD 40. • Entry: 1.0063 • Target: 1.0135 • Stop Loss: 1.0003 • Profit at Target: USD 57.8 • Loss at Stop: USD 48.6 • Reward to Risk: 1.2x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
NYMEX:CL1!Long
by mintdotfinance
NQ Power Range Report with FIB Ext - 3/6/2024 SessionCME_MINI:NQH2024 - PR High: 17985.00 - PR Low: 17952.25 - NZ Spread: 73.0 08:15 | ADP Nonfarm Employment Change 10:00 | Fed Chair Powell Testifies - JOLTs Job Openings 10:30 | Crude Oil Inventories Huge inventory decline prev session - Faded into daily 20 Keltner avg - Inventory response off 2/28-29 lows - above prev session close Evening Stats (As of 12:15 AM) - Weekend Gap: +0.08 (filled) - Gap 10/30 +0.47% (open < 14272) - Session Open ATR: 240.75 - Volume: 24K - Open Int: 285K - Trend Grade: Bull - From BA ATH: -2.1% (Rounded) Key Levels (Rounded - Think of these as ranges) - Long: 18675 - Mid: 18106 - Short: 16963 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions. BA: Back Adjusted BuZ/BeZ: Bull Zone / Bear Zone NZ: Neutral Zone
CME_MINI:NQH2024
by mv3trader5
Could the premium get even beefier? In a previous article, "A Beefy Premium" , we delved into the growing divergence between Live Cattle and Lean Hogs. Since then, this disparity has only broadened. Currently, we're seeing a historic peak in both the absolute price difference (Live Cattle – Lean Hog) and the price ratio (Live Cattle/Lean Hog). To comprehend the drivers of this divergence, we need to explore the fundamentals of each sector. Beef: USDA economists, Russell Knight and Hannah Taylor, have noted that the repercussions of drought are still impacting calf production. The twin challenges of poor pastures and dwindling hay supplies have made it difficult for farmers to sustain their breeding stock. This has prompted a surge in beef cow culling. With anticipated feed price reductions on the horizon, we predict a tilt towards placing more calves into feedlots in 2024, constricting the cattle supply even further. Interestingly, despite the tightening cattle supply, demand remains robust. Beef cutout prices reached a pinnacle in October, with prices generally maintaining historic highs on a monthly scale. Seasonally, prices are also expected to rise slightly going into November due to a holiday boost. A possible explanation for this sustained demand might be the surge in US wages. Empowered with heftier paychecks, consumers are more able to splurge on beef, ensuring packers to keep up their slaughter pace. Pork: On the hog front, this quarter reflects a modest uptick in inventory. In contrast to the cattle market, the decline in headcounts here isn’t as pronounced. A noteworthy correlation emerges between lean hogs and soybean meal. With soybean meal being a staple in animal feed production, its price directly influences producer margins. Factors like the Russia-Ukraine conflict, US droughts, and surging demand for soybean meal have propelled its prices in recent years. Even though the current prices are tapering off, the Soybean Meal/Lean Hogs ratio remains high, signaling shrinking profit margins for producers. Moreover, compared to other commodities, the USDA's support for the Hogs and Pigs market has been relatively scant. Another point of concern is the prevalence of negative news in the swine industry, such as the European swine industry suffering substantial financial losses in 2023, leading to an 8.5% drop in production. Or bouts of African Swine Fever, threatening global supplies. Such events have the potential to threaten producer’s profitability significantly which could work its way into structural long-term decline in supply. But as of now, this remains to be seen. Overall: Current evidence seems to be pointing to a stronger preference for beef given the unwavering demand despite supply shortage and climbing prices. Basic economics principlesnudge producers to markets with higher profitability, which could work its way into an increase in participants leading to supply eventually matching demand. Although this movement, if it happens, does not occur overnight, it will eventually lead to a convergence in prices between the two markets in the future. There are also other reasons that need not be as drastic that point towards a convergence in prices in the medium term: expectations of Live Cattle supply should improve next year; the road to the maximum willingness to pay for Live Cattle is shorter now. Hence, to express our continued bearish bias, we could consider a short on the spread of live cattle to lean hogs. Given that both Lean Hog & Live Cattle Futures have the same contract unit of 40,000 pounds and price quotation of US cents per pound, we can trade the spread of the two contracts using a 1:1 ratio. This involves selling one live cattle futures contract at the current price of 185.725 and buying one lean hog futures contract at the current price of 68.025 giving us a spread of 117.7. Each 0.00025 increment is equal to 10$. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: usda.library.cornell.edu usda.library.cornell.edu beef2live.com www.cmegroup.com www.cmegroup.com
CME:LE1!Short
by inspirante
NQ Power Range Report with FIB Ext - 10/4/2023 SessionCME_MINI:NQZ2023 - PR High: 14720.00 - PR Low: 14700.50 - NZ Spread: 43.5 Key Economic Events 08:15 – ADP Nonfarm Employment Change 09:45 – S&P Global Services 10:00 – ISM Non-Manufacturing PMI - ISM Non-Manufacturing Prices 10:30 – Crude Oil Inventories Heavy volume and Open Interest - Returned to daily inventory over 14600 Evening Stats (As of 12:15 AM) - Weekend Gap: +0.49% (filled) - Session Gap: -0.33% (open > 15807) - Session Gap: -0.11% (open > 15939) - Session Open ATR: 242.14 - Volume: 46K - Open Int: 254K - Trend Grade: Neutral - From ATH: -12.6% (Rounded) Key Levels (Rounded - Think of these as ranges) - Long: 16105 - Mid: 15247 - Short: 14675 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQZ2023Short
by mv3trader5
CrudeOil is all set to break it's RESISTANCE!Crude oil is all set to giving a breakout on long side! you can expect data ( Tomorrow's Inventory ) to support this possible breakout! yes! you can consider a BUY on WTIcrude oil STRICTLY above 73.75 Region with the SL of 71.25 for the target of 77.75!!! Alternative scenario : If crude is not giving breakout on upper side, you can go for sell below 71.75 with the sl of 73.75 for the target of 68/66!!! Disclaimer : Consider this post for educational purpose only. Always do your own analysis or consult with Financial adviser before taking any investment decision. We are not responsible for any profit or LOSS. Trading in derrived products with the leverage always carry high risk. Always Invest an amount which you can afford to loose.
NYMEX:CL1!Long
by edwin1805
A Beefy Premium.Live cattle recently hit an all-time high, leaving us wondering if the rally has gone too far. The front month contract reached 177 on April 13, surpassing the previous record set in November 2014. Meanwhile, lean hogs have been trading lower since last year. One way to assess this trend is to look at the spread between the two livestock markets. Both the absolute price difference and the Live Cattle/Lean Hog ratio are currently at highs. The absolute price difference is at its second-highest level ever, with only March 2015 having a higher reading. The ratio spread, meanwhile, is trading at the higher end of the range since 2015. So, what's driving this trend? Well, we could start by looking at what caused the surge in 2015. A mix of live cattle rising and lean hog prices falling contributed to the surge in the spread as cattle inventories bottomed in 2014. Looking at the current supply dynamics, we see the smallest cattle herd in eight years, with the previous low marked by the 2014 episode and hog supplies on a downtrend but still above the previous decade’s average. As consumers become more environmentally conscious, they may prefer pork over beef due to the former’s lower environmental impact per calorie. Additionally, with the price gap between beef and pork increasing, price-sensitive consumers may switch to other protein sources as inflation continues to weigh on their mind. In the longer term, consumer preferences could flip to favour hogs over cattle. Seasonality effects are also pointing towards an unusual year. Historically, May marks the low point for the spread as hog prices run up towards the middle of the year. However, with May already underway, the spread is not close to any lows and lean hogs are still trading down. This suggests that the current year’s spread is trading abnormally high compared to past trends. Given that both Lean Hog & Live Cattle Futures have the same contract unit of 40,000 pounds and price quotation of US cents per pound, we can trade the spread of the two contracts using a 1:1 ratio. To express our bearish bias on the spread we can sell one contract of the Live Cattle Futures and buy one contract of the Lean Hog Futures. Keeping in mind the 2015 run took close to 1.5 years to bottom, we will place our stops further out at 110 and take profit at 45, giving the spread a longer horizon and more room to play out. Each 0.00025 increment equal to 10$. So, will you be switching from steaks to pork chops anytime soon? The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: usda.library.cornell.edu usda.library.cornell.edu www.cmegroup.com www.cmegroup.com ourworldindata.org
CME:LE1!Short
by inspirante
Commodity OutlookRecession may be a red herring for a market fuelled by a supercycle While broad commodities have outperformed most major asset classes year-to-date1, the pressure of rising interest rates, a strong US dollar and fears of several large economies tipping into recession has led to a pull-back since the summer of 2022. In our Market Outlook, we argued that the current negative business cycle pressures on commodities are likely to be temporary and give way to the larger forces pushing the demand for commodities higher and constraining supply of those commodities. Historically, commodities have been a cyclical asset class, generally declining when the business cycle turns negative. But even history illustrates that commodity prices can continue to rise long after a business cycle has turned if fundamentals are supportive. Oil price shocks in the 1970s and 80s are a case in point. Admittedly they are unusual cycles but, today, we are likely to be living in another energy price shock. Energy price shocks continue Since we published our Market Outlook, the Organization of the Petroleum Exporting Countries and partner countries (OPEC+) has announced a large cut to oil production from November 2022, amounting to 2 million barrels per day. As we expected in our Outlook, OPEC+ reacted to the price weakness in oil after the summer and sought to raise prices of Brent oil to over US$90/barrel (prices had fallen to US$84/barrel on 26 September 2022, just over a week before the OPEC decision). They have been successful in keeping prices above US$90/barrel since that decision but have laid the groundwork for further cuts by painting a pessimistic picture on demand forecasts (giving the group an excuse to intervene in the market again). Meanwhile, the Ukraine war shows no sign of improving and natural gas supplies into Europe from Russia have fallen to a trickle. The European Union has taken various measures to try to soften the shock. However, we view several of the proposals with scepticism. For example, introducing price caps on natural gas imports could simply divert natural gas to other countries and worsen the energy shortage for the EU. Interfering with price benchmarks, such as the Title Transfer Facility (TTF), could send incorrect pricing signals and lead to overconsumption of energy resulting in additional shortages2. Supply shortages of commodities extend beyond energy A combination of rising energy prices and interest rates have driven many metal smelters to shutter production. High fertiliser prices (petrochemical product) are also constraining crop yields. Looking across the commodity spectrum, all commodities have lower-than-normal levels of inventory. Base metal supply is especially low The inventory of base metals is considerably lower than their respective 5-year averages, yet base metals have seen the largest price declines of all the commodity sub-sectors. The markets are pricing in demand weakness from an economic deceleration. However, demand has not weakened yet. On the other hand, supply is declining fast. Let’s take the example of copper. The International Copper Study Group (ICSG)’s first forecast for 2022 copper balances (demand less supply), cast on October 2021, was for a sizeable surplus of 328 thousand tonnes. Its latest forecast (cast on 19 October 2022) is for a deficit of 328 thousand tonnes in 2022. Judging by historical revisions, their 2023 forecast of a surplus is likely to be revised down. Their initial forecasts tended to assume no production disruptions. Yet, as we have observed this year, production disruptions can be very large. China’s economic deceleration is countered by policy support China’s zero-COVID polices have slowed economic growth and, thus, its demand for commodities. That matters because China is the largest commodity consumer in the world. However, its central bank has been loosening policy and President Xi has called for an ‘all-out effort’ to increase infrastructure spending (and given local governments free rein to raise debt financing to fund these projects). However, the future course of China’s policy will become clearer after we write this blog. At the time of writing (21 October 2022), China's 20th Communist Party Congress is still in process and will wrap up in the coming days. Xi Jinping is poised to clinch his third five-year term in charge of the nation. We expect national security to take a greater role in policy priority than the economy. Commodity supercycle An energy transition and a revitalised global infrastructure spend are likely to drive the demand for commodities significantly higher over the coming years. However, today, we are living in the down-phase of a business cycle. Even though many commodity markets are visibly tight, commodities are not sufficiently pricing the tightness. The Inflation Reduction Act in the US and the Infrastructure Bill are both strong tailwinds for commodity demand. In Europe, the sharp focus on weaning off Russian energy dependency is adding a new urgency to the energy transition, and we expect to see accelerated energy infrastructure plans take place. Conclusion As a headline, economies going into recession doesn’t inspire huge confidence in a commodity rebound. However, history does suggest that an economic slowdown combined with high inflation has been associated with positive commodity and gold performance. The energy price shock has set off a vicious circle of supply contraction from metals, fertilisers, and other energy intensive commodities. The energy transition and infrastructure led supercycle remains in play even if short-term business cycle phenomena dictate headlines today. As we emerge from this phase of the business cycle, we may find commodity markets extraordinarily tight.
CBOT:AW1!
by aneekaguptaWTE
NQ Power Range Report with FIB Ext - 10/27/2022 SessionCME_MINI:NQZ2022 - PR High: 11464.25 - PR Low: 11417.00 - NZ Spread: 105.50 *Coming off an inside day, near previous supply, possibly new inventory Evening Stats (As of 12:20 AM) - Weekend Gap: N/A - Session Gap: -0.49% (filled) - 10/26 Session Gap: -0.65% (filled) - 8/29 Weekend Gap: -0.18% (open > 13125) - 8/19 Session Gap: -0.04% (open > 13540) - Session Open ATR: 341.67 - Volume: 44K - Open Int: 275K - Trend Grade: Bear - From ATH: -31.6% (Rounded) Key Levels (Rounded - Think of these as ranges) - Long: 12391 - Mid: 11820 - Short: 10678 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQZ2022Long
by mv3trader5
NQ Power Range Report with FIB Ext - 5/20/2022 SessionCME_MINI:NQM2022 - PR High: 11928.25 - PR Low: 11883.00 - NZ Spread: 101.50 Evening Stats (As of 12:05 AM) - Gap: = N/A - Session Open ATR: 447.69 - Volume: 34k - Open Int: 255k - Trend Grade: Bear - From ATH: -28.5% (Rounded) ! BOUNCED OFF THE 'MAGICAL' -30% ! Key Levels (Rounded - Think of these as ranges) - Long: 14105 - Mid: 12960 - Short: 11820 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQM2022Long
by mv3trader5
NQ Power Range Report with FIB Ext - 3/9/2022 SessionCME_MINI:NQH2022 - PR High: 13258.75 - PR Low: 13192.00 Evening Stats (As of 12:05 AM) - Gap: = N/A - Session Open ATR: 460.31 - Volume: 37k - Open Int: 240k - Trend Grade: Neutral - From ATH: -21.0% (Rounded) Key Levels (Rounded - Think of these as ranges) - Long: 14675 - Mid: 13500 - Short: 12390 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQH2022
by mv3trader5
NQ Power Range Report with FIB Ext - 12/17/2021 SessionCME_MINI:NQH2022 - PR High: 15878.25 - PR Low: 15812.00 Evening Stats (As of 1:27 AM) - Gap: = N/A - Session Open ATR: 341.09 - Volume: 52k - Open Int: 210k - Trend Grade: Neutral - From ATH: -5.5% (Rounded) Key Levels (Rounded - Think of these as a range) - Long: 16963 - Mid: 16391 - Short: 15819 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQH2022Short
by mv3trader5
NQ Power Range Report with FIB Ext - 12/15/2021 SessionCME_MINI:NQH2022 - PR High: 15946.50 - PR Low: 15909.50 Evening Stats (As of 11:31 PM) - Gap: = N/A - Session Open ATR: 297.39 - Volume: 22k - Open Int: 177k - Trend Grade: Neutral - From ATH: -5.0% (Rounded) Key Levels (Rounded - Think of these as a range) - Long: 16963 - Mid: 16391 - Short: 15819 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQZ2021
by mv3trader5
The Crude Oil MessCrude oil is predictable, even though most market participants and pundits express shock when the price tanks as it has since November 26. The writing was on the wall in the crude oil market. The US administration is taking credit for falling oil prices- Begging OPEC and opening the spigot at the SPR Seasonal factors are at play- Inventories remain low OPEC+ is in control The only way to keep oil prices low in 2022 is to support US output Expect a rebound as crude oil is likely to reach $100 or higher in 2022- A scale down buying opportunity for next year The price of nearby NYMEX crude oil futures rose to the highest level since 2014 on October 25, when it reached $85.41 per barrel. Since then, crude oil has posted a loss over the past six consecutive weeks. The weekly chart shows the correction that took the energy commodity to a low of $62.43 per barrel last week, a nearly 27% decline from the late October high. Crude oil tends to take the stairs higher and an elevator shaft to the downside during corrections. In April 2020, that shaft had no bottom as the price dropped briefly to below negative $40 per barrel. Before April 2020, most market participants could never imagine an oil price below zero. Meanwhile, the current correction is ugly for producers but welcome news for consumers. The US administration had been working to stem the rise of the energy commodity and is now taking a victory lap after the 27% decline. However, the celebratory political dance could be premature as all of the fundamental pieces of the oil puzzle continue to support much higher prices in 2022. Few markets are uglier than crude oil when the price moves to the downside. However, anyone who bought oil after the April 2020 plunge made a fortune and the current correction could offer the same rewards. The US administration is taking credit for falling oil prices- Begging OPEC and opening the spigot at the SPR President Biden has been jawboning about higher energy prices over the past weeks. His administration released fifty million barrels from the strategic petroleum reserve in November to address rising gasoline prices. The President made a point of saying that rising energy prices are not related to his administration’s policies to address climate change by supporting alternative and renewable energy production and consumption while lowering supplies and the demand for fossil fuels. Before the SPR release, the administration had twice asked the international oil cartel, OPEC+, to increase output, and OPEC+ denied the request. Last week, the cartel decided to proceed with scheduled production cut reductions of 400,000 barrels per day in January 2022. However, the rise of the new COVID-19 variant caused OPEC+ to leave the discussions open to trim output if it sees demand decline over the coming weeks. Moreover, any further decline in the oil price would likely cause a delay in the tapering, leading to lower production. The SPR sale came right before hawkish comments from Fed Chairman Jerome Powell, who told Congress that he favors accelerating the pace of QE tapering to combat inflation. The Fed is now abandoning its characterization of rising inflation as “transitory,” as recent CPI data reveals more structural reasons for increasing prices. While the central bank, Treasury, and administration are taking inflation far more seriously, they have neglected to admit that it has been monetary and fiscal policies since early 2020 that lit the inflationary fuse. The tidal wave of liquidity and tsunami of stimulus and pandemic-inspired supply chain issues have created the current economic environment. Seasonal factors are at play- Inventories remain low Meanwhile, the energy commodity is now moving into the winter months, a seasonally weak period for gasoline demand. Since late November, crude oil took an elevator shaft to the downside, which is partly a seasonal event. The monthly chart shows the crude oil futures market experience late-year selloffs in 2018, 2015, 2014, and 2013. Going into the winter, selling in the oil market tends to be a seasonal event in the futures arena. Meanwhile, US inventories have declined by 60.2 million barrels. Gasoline stockpiles were down 20.8 million, and distillate stocks dropped 28.1 million barrels over the period. The inventory decline comes as US output is down from the March 2020 13.1 million barrel per day high. As of November 26, the US was producing 11.6 mbpd, 11.5% lower. With US output lower, falling inventories are a sign of robust demand. The fundamental case for crude oil going into 2022 remains bullish. OPEC+ is in control It took decades for the US to establish energy independence from the Middle East. When daily output rose to 13.1 mbpd, it was higher than Russia and Saudi Arabia and was enough to meet most US demand. President Biden pledged to address climate change during the 2020 election. On his first day in office, he canceled the Keystone XL pipeline that carried petroleum from the Canadian oil sands to Steele City, Nebraska, and beyond to the NYMEX delivery point in Cushing, Oklahoma. In May 2021, the administration banned drilling and fracking for oil and natural gas on federal lands in Alaska. The administration is currently looking to shut down other pipelines they claim cause environmental damage. Regulations on fossil fuel production have tightened, increasing the production costs. There are no incentives and plenty of roadblocks for US energy companies to increase output under the Biden administration. Addressing climate change is a noble cause. However, only around one percent of US automobiles are EVs, as gasoline-powered cars dominate the market. It will take decades to shift from hydrocarbons to renewable energy sources, but the US and the world continue to depend on fossil fuels for power. The bottom line is the dramatic shift in US energy policy handed crude oil’s pricing power back to the international oil cartel. The decisions in Moscow and Riyadh will determine the path of least resistance of oil prices. The administration’s request to increase output was significant from two perspectives. First, it validated that the US returned the pricing power to the cartel. Second, it showed a lack of appreciation that climate change is a global issue. If the US is concerned that hydrocarbon production impacts the worldwide environment, why would it ask for increased output from the Middle East and Russia? The request seems inconsistent with the policy initiative. The only way to keep oil prices low in 2022 is to support US output OPEC+ would rather sell one crude oil barrel at $100 than two at $40. The cartel’s mission is to achieve the highest possible petroleum price for its members while balancing the market’s supply and demand fundamentals. After years of losing pricing power because of rising US output, OPEC+ is back in the driver’s seat. Oil companies have told the administration if they are concerned with rising gasoline prices, asking OPEC+ for help is the wrong route. A more than cooperative group of US oil companies would love to help the administration temper prices by increasing production. Moreover, more output would create jobs and much-needed US tax revenue. Leaving pricing policy in the hands of the cartel and Russian President Vladimir Putin is a prescription for higher prices over the coming years. Moreover, higher oil prices will fund expansionary desires for Russia as it eyes Ukraine and other former Soviet bloc countries. Keeping oil prices under control depends on using the vast US reserves. The evolution of the green revolution is not an overnight undertaking. Over the coming decades, a slow and steady approach will allow technology to take the US and the world on a greener path. A kneejerk approach that transfers control of the oil market to the cartel is both an economic and political mistake. The world’s most famous oil trader, Marc Rich, once said that oil is the blood that flows through the world’s veins. Replacing that blood with wind, solar, and other power sources to protect the environment is not a US, but a worldwide issue. Assuming that China and India will follow the US on the green road is naïve. Expect a rebound as crude oil is likely to reach $100 or higher in 2022- A scale down buying opportunity for next year Inventory data shows that US demand is robust. The global population continues to grow by around twenty million each quarter. When I was born in 1959, under three billion people were on our planet. As of the end of last week, over 7.8 billion people inhabited our planet. In 2024, the number will rise over the eight billion level. Energy demand increases each year; in 2021, it is higher than in 2020, and in 2022, it will be higher than in 2021. With the world still addicted to fossil fuels and OPEC+ in control, it is just a matter of time before oil’s price rises above the $100 per barrel again. Fundamentals favor the upside. Despite the recent correction, technical factors remain bullish. The monthly chart highlights nearby NYMEX crude oil futures fell to a higher low last week at $62.43 per barrel, 69.0 cents above the August 2021 low. If the recent low holds, the energy commodity will have made a higher low. Even if crude oil probes below the August 2021 low, the trend since April 2020 remains bullish. On the upside, the late October high at $85.41 was the highest price since 2014, the last time crude oil traded above the $100 level. Oil took the elevator to the downside over the past weeks during a seasonally weak time of the year. The only way to ensure that the energy commodity does not move back to triple digits over the coming months and years is to let US producers do what they do best, produce. Ramping up production and reestablishing US energy independence while the government and private sector work together on a renewable fuel transition is the only route for success over the coming decades. A logical plan with achievable economic and political goals has the best chances of leading the world down a greener path. It is far too early for the leadership in Washington DC to take credit for the selloff in crude oil and gasoline futures markets. However, politicians will use every opportunity for a victory lap, even if the short-term gains lead to long term losses. --- Use the link below to sign up for early access to these articles and more. Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
NYMEX:CL1!Long
by Andy_Hecht
Good for a short US OIL BUY? 17.06.2021Yesterday the inventory report at 17:30 (GMT+3) showed that the change in the number of barrels of crude oil held in inventory by commercial firms during the past week was again negative and even higher than before -7.1M barrels, against the expected figure of -2.1M. >> Its spot price fell overall back to 71 USD per barrel, that day, but as figures suggest, there is no indication yet of the price no to continue its upward path back to 72.5 level at least.
TVC:USOILLong
by UnknownUnicorn5944879
1
Oil investors await the IEA World outlook and OPEC’s report::Crude oil prices slipped, as a string of supply disruption which supported prices is subsided now, with bearish headwinds from easing supply blocks in Norway and Libya which opened up the door to potential rise in global oil production to a market facing feeble demand due to pandemic. Energy Operators have restarted their production in Gulf of Mexico after Hurricane Delta which led to shut in the most US offshore production is now downgraded to post-tropical cyclone. Concerns over rising supply were compounded by news that Libyan output was expected to initially restart 40,000bpd, before reaching its capacity of almost 3,00,000bpd in 10 days. The final blow to oil prices came from Norway, with negotiations successfully ending strike action that had crippled 8% oil production. Today, investors await the IEA World outlook followed by OPEC’s Monthly Market Report. Sentiments remain bearish as supply ease and expectation for a muted demand outlook from agencies can put additional pressure on prices as promising results are not expected from either of the report. Suggestion: BUY WTI OIL FROM 39.80 SL BELOW 38.80 TGT 41 ELSE SELL BELOW 38.80 TGT 38.20/37.60 SL ABV 39.80
TVC:USOILLong
by OfficialYaMarkets
1
Beware the approaching storage capacity limitAn article in The Guardian reveals that the world's oil storage is now at 75% of capacity, and Canada may be just days away from reaching capacity. The rest of the world may still have a couple months. But as oil storage runs out, storing excess crude is going to become less of an option for producers. They will have to either stop production or sell at lower prices. The Guardian is warning that this could lead to $10 per barrel oil. I'm not sure we'll get that low as economies come back online, but this does mitigate some of the upward price pressure we've been seeing from dollar inflation and reopening businesses in China. Oil itself may or may not take a price hit, depending on whether producers decide to stop production or sell at lower prices. But producers's stock prices will fall regardless, so the best way to play this on the short side might be to short oil and gas stocks. On the long side, there's an opportunity in shippers. I didn't realize this was happening, but Saudi Arabia has already driven tanker booking costs to record highs with its increase of oil output. And now tanker booking fees may go even higher as oil producers all over the world look to ship their excess crude to available storage locations. The danger with playing it this way, however, is that tanker demand will eventually fall as storage capacity runs out and producers cut production.
FX:USOIL
by ChristopherCarrollSmith
3
Oil looking for breakout after oil inventory surpriseYesterday the American Petroleum Institute reported a crude inventory build twice as large as what analysts expected, so I am shocked this morning to see the Energy Information Administration report an oil inventory draw of 1.7 million barrels. That's a huge difference from analyst expectations of an over 2 million barrel build, and it's an ever bigger difference from the API number of a 4.5 million barrel build. I suspect the inventory surprise will push oil above its recent range today. UWT is a great instrument to use to play a breakout, should one occur.
ULong
by ChristopherCarrollSmith
Oil price torn between Brexit deal and inventory dataThis week there was a huge surprise US oil inventory build (10 million barrels, 3 times the analyst estimate) due to US sanctions against the shipping company COSCO. However, we also got a Brexit deal today. Oil has been struggling to decide which way to move on all this news. The trend appears to be downward, but it's not confirmed until it breaks below the triangle. Oil is a short only if and when it breaks below triangle bottom.
FX:USOILShort
by ChristopherCarrollSmith