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