Monthly Archives: September 2018

The Joint OPEC-non-OPEC Ministerial Monitoring Committee (JMMC) seems to have taken the market by surprise. I knew the price would be trending up, but I didn’t realise it would do it so soon, after this one meeting. I had expected it to only start rising properly in early Nov 2018. This makes future trades clearer as the bull signal seems to overweigh the bear signals. However, it does affect my previous forecasts and trades I previously predicted a cap the price of oil. Still, I won’t expect any large movements up or down till Nov.

Forecasting Checklist

• Oil industry news
  • Political Plays?
    • The USA China Trade War saga continues.
      • But it doesn’t seem to make much of an impact any more. Either the market has priced it in, or that people are not suspecting that demand will be affected that badly.
    • The JMMC resulted in OPEC saying that though it will increase production, it will do so based on the demand that they observe, and not due to USA’s request.
      • The meeting results immediately increased prices. ^
      • It seems that Saudi and Russia are going to do what they want earlier than I predicted.
      • With this and the lessening impact of the trade war, it seems that there are few downside pressures on the oil price. ^
    • I do realise that a lot of these predictions rely on the sanctions on Iran continuing. There is a possibility, though small, that USA will remove their sanctions on Iran as this will lead to the lower oil prices that they want for their election.
  • Level of uncertainty?
    • This is still high and will only start resolving itself starting in Nov.
    • USA stock markets are just below record highs.
  • Upcoming events/meetings?
    • US Midterm elections: 6 Nov 2018
    • Hard deadline on Iran sanctions: 4 Nov 2018
    • The JMMC just past over the last weekend
  • Oil discoveries or disruptions?
    • Although USA is producing as much oil as Russia and Saudi, it seems they have an oil pipeline bottleneck issue. This means, their additional production isn’t exactly increasing real supply. ^
    • This article reports that with higher prices would come more investments in oil infrastructure. This could do things such as alleviate USA’s pipeline bottleneck issues. Regardless of timing, it seems that $100 would be a possibility as there currently is no short-term solution to meet the disappearance of Iranian oil.
• Check status of economies
  • Oil demand?
    • See above comment on trade war
    • Saudi has commented that they see demand remaining strong and increasing slightly in the next three months. ^
• Check other charts for movement
  • USD
    • USA has been on an uptrend. v
  • Gold
    • Gold has been more or less flat recently.
• Technical analysis
  • There seems to be a price support at the $64-65 level. ^
  • IV percentile is lowering
  • TTM_LRC ranges
    • WTI prices are now in the upper 1SD range
• Check Chart discrepancies
  • Quarterly expiry of futures and next futures chart
  • Gap between WTI and Brent
    • The price gap widens slightly again. ^

The Forecast

I believe now that Saudi and Russia have indicated that they will pump as much oil as their want, they will let the prices float to the $80 Brent that previously said they are comfortable with. This would mean that the price is generally bullish. The WTI price is currently about $72.16.

• I am 84% confident that the price of WTI oil will not be below $65 on 14/11/2018.

The next set of forecasts have moved in the November expiry date. Considering that this date is after the USA elections and Iran Sanctions, these events will have a big impact on the prices. The following is what I think will happen after these two events:

• China will continue buying Iran oil
• USA allied countries will be in slight disarray as their find new sources to purchase from
• Saudi and Russia will attempt to catch market share by pumping more oil, selling it to the countries that complied with Iran sanctions and probably charge these countries a little more
• USA will probably try to do the same with their shale oil

I don’t think the loss of Iran production is actually a big impact of itself, USA, Russia and Saudi can make up for it. But the market reaction to the sanctions will be overblown to the upside, along with Saudi’s desire to raise the prices.

Forecasting Checklist

• Oil industry news
  • Political Plays?
    • The USA China Trade War doesn’t seem to make much of an impact any more. Either the market has priced it in, or that people are not suspecting that demand will be affected that badly. v
    • Saudi says it is OK with $80 Brent ^
    • There have been some reports of USA now becoming the world’s largest producer of oil. Whether it’s true or not, basically oil production is now in a ‘three kingdoms’ situation between the USA, Russia, and OPEC Saudi.
      • OPEC Saudi and Russia are in cooperation to make what they can from oil, boost their market share, but not push the price so high that demand from developing countries suffers or that USA’s shale becomes profitable for the USA. This is a difficult balance to achieve, and it seems the range of $70 to $80 Brent is their short-term target. With gap of Brent to WTI of about $10, this would translate to a price of $60 to $70 WTI. ^
      • Saudi wants to appease the USA by keeping a lid on prices now, but might not do so after the USA’s upcoming election.
        • Iran has been Saudi’s rival, so with USA helping to place sanctions on Iran, Saudi will continue to ally with the USA for a while on that front.
        • I think Saudi wants to raise prices (but not too much), but still a raise from where it currently is. ^
  • Level of uncertainty?
    • This is still high and will only start resolving itself starting in Nov.
    • USA stock markets are at record highs again.
  • Upcoming events/meetings?
    • US Midterm elections: 6 Nov 2018
    • Hard deadline on Iran sanctions: 4 Nov 2018
    • Russia and Saudi, amoung others, are scheduled to meet this weekend to discuss their oil production strategy going forward. I have a feeling there will be a price spike after this event. ^
  • Oil discoveries or disruptions?
    • USA oil inventories are decreasing. ^
• Check status of economies
  • Oil demand?
    • See above comment on trade war
• Check other charts for movement
  • USD
    • USA has been weakening slightly. ^
  • Gold
    • Gold has gone flat recently.
• Technical analysis
  • There seems to be a price support at the $64-65 level. ^
  • IV percentile is lowering
  • TTM_LRC ranges
    • WTI prices are now in the upper 1SD range
• Check Chart discrepancies
  • Quarterly expiry of futures and next futures chart
  • Gap between WTI and Brent
    • Prices have a difference of about $10, which is relatively wide, or at least wider than usual. ^

The Forecast

The next set of forecasts have moved in the November expiry date. I believe there is a price floor and the upside to the price of oil is unknown, but I think the price is generally bullish. The WTI price is currently about $71.20.

• I am 85% confident that the price of WTI oil will not be below $63 on 14/11/2018.

This week is another strange week, with nothing major happening. Again, small news seems to be sending the market too overblown in one direction or another. After reviewing the news, I think there is a weird equilibrium in the oil markets but paired with high uncertainty. Still the current floor for oil prices seems to be about $64, and the ceiling seems to be 72. I think the floor is more solid than the ceiling, and I do think there is more upsize potential for oil than down. The reasoning being that if the price goes too low, the suppliers will start to cut their supplies again (which they have done before). And if the price gets too high, then the producers will simply let it be to earn more. It would seem that we are only going to get a solid price action indicator in Nov.

Forecasting Checklist

• Oil industry news
  • Political Plays?
    • Iran’s sanctions are on Nov 4, which is still after the current trading period
    • Seems like India has joined China in planning to continue to buy Iran oil after the Sanctions
      • However, I think the market reaction when the sanctions hit is to push the price up. ^
    • The rising oil prices over recent months has helped Saudi earn more than they expected
      • They might want the price to continue up to earn more ^
    • Russia’s oil output is at record highs  v
    • I was watching a news clip on the US-China trade war (no link). The expert on the show was saying that the rationale for the trade war really was to hit back at China for all the aggressive things it’s been doing over the past few years. These aren’t just the economic plays they have made and the IP theft. It apparently is to hit back at the territory in the South China Sea that China has claimed, the lazers shone on American planes, and to shake confidence in China’s leadership amongst the China populace. Basically, the expert said it was a power play for US.
    • • Another show I watched talked about the idea that US is the superstore selling stuff to the end consumers, and China is like a vendor, making stuff for this superstore. This would mean that US would have some power over China, in terms of choosing whether it wants to purchases goods and services from them. This tariff is the US government’s way of forcing US businesses not to choose China.
      • I think with this insight, we might be getting a better idea of the end-state of these trade war
      • I don’t think the trade war would actually dampen oil demand, but the reaction to the market will probably still have the ‘demand fears’ the next time tariffs roll around again
  • Level of uncertainty?
    • Uncertainty is still pretty high right now.
    • With all the ups and downs and market forces pulling on both sides, it could be that the current prices are at some sort of equilibrium.
  • Upcoming events/meetings?
    • US Midterm elections: 6 Nov 2018, They will want to keep the price down then.
      • Which is probably why they are trying to sell their own oil reserves.  v
        • I’m still wondering the true reason they are doing this though.
  • Oil discoveries or disruptions?
    • A storm warning which would have affected some oil rigs, now found to not be as bad as originally thought, was enough to spike prices this past Tuesday. This seems to show me that the prices are just going to react to every little thing for the time being.
• Check status of economies
  • Oil demand?
    • No news to threaten demand this week
• Check other charts for movement
  • USD
    • Price has gone up over the past week. v
  • Gold
    • Price has gone down over the past week. v
• Technical analysis
  • MACD
    • Is indicating the that recent price run-up is abating
  • TTM_LRC ranges
    • Just lower than the middle line. Still in the lower 1SD zone
  • There seems to be a support line at about the $64 mark as prices have not crossed below this line in 4 months. ^
• Check Chart discrepancies
  • Quarterly expiry of futures and next futures chart
    • Current futures expring in 15 days, trading at a 28cent premium
    • Current futures trading at a $2.95 premium than one year away futures contract
  • Gap between WTI and Brent
    • Brent is trading at a $8.43 premium to WTI. ^

The Forecast

With both the upward and downward forces in play yet again, I think I’ll make an iron condor style prediction as I do not think the prices are moving much one way or the other. Considering that the current price near the middle of the TTM_LRC bell curve, things can swing either way, and I don’t want to be caught out if it swings against me. The current price is around $68.95. Still, I think it is a good idea to trade further away from the market, considering all the uncertainty.

• I am 75% confident that the price of WTI oil will not be below $61 and not be above $76 on 19/10/2018