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The CL Crude-analysis Thread
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The CL Crude-analysis Thread

  #1211 (permalink)
Market Wizard
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ron99 View Post
IMO oil will be staying here or going lower the next 3 months. Record refinery oil demand now will drop off when summer driving is done. Oil production has not dropped enough to hold prices.
image...

Refinery input peaks about now and then drops off to Nov.
image...

That means that oil inventory will start growing again.
image...

Hedge fund longs have increased the last 2 weeks. If they have to bail out then prices will drop further than expected.

Thanks @ron99. I reach similar conclusions.
I would add that imports have also been a multi-year lows for most of the last 3 months - which is probably not surprising given production is at highs - while inports have increased from the lows, the last 2 years they have increased further over the next several weeks before dropping again in Q4. Prior to that imports tended to drop in 2H more in line with runs.
Do you happen to have a chart for crude imports? (not sure on the copyright of mine)

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DeadCatBounced View Post
Anyone thinking about taking a swing trade on the (possible) cycle low for oil?

What has peoples experience been trading USO?

I cant comment based on an intra-day basis but for long(er) time frames I recommend either being short or avoiding it completely. I went long it in 2009 at 34 with crude at $40. I scratched (!!!) the trade some months later with crude at $60. Now with crude roughly at the same price it was when I got long back in the day USO is amazingly 14 and change. Contango just eats this product alive.

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@SMCJB Yes, the wise thing to do as I understand it with a Contango is to "buy" the spread, ( buy the deferred and sell the near). Sept-Oct up, Oct-Nov up, etc. The problem is that once the move is on, do you really want to chase it?

The spread that I believe looks good is to buy the refined = RB Sept. (currently Inversed) and sell the raw = Crude maybe Oct.

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SMCJB View Post
Thanks @ron99. I reach similar conclusions.
I would add that imports have also been a multi-year lows for most of the last 3 months - which is probably not surprising given production is at highs - while inports have increased from the lows, the last 2 years they have increased further over the next several weeks before dropping again in Q4. Prior to that imports tended to drop in 2H more in line with runs.
Do you happen to have a chart for crude imports? (not sure on the copyright of mine)

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DeadCatBounced View Post
Anyone thinking about taking a swing trade on the (possible) cycle low for oil?

What has peoples experience been trading USO?


Profiler View Post
I cant comment based on an intra-day basis but for long(er) time frames I recommend either being short or avoiding it completely. I went long it in 2009 at 34 with crude at $40. I scratched (!!!) the trade some months later with crude at $60. Now with crude roughly at the same price it was when I got long back in the day USO is amazingly 14 and change. Contango just eats this product alive.

Agree with @Profiler, roll yield will kill you in contango markets.

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ElChacal View Post
The spread that I believe looks good is to buy the refined = RB Sept. (currently Inversed) and sell the raw = Crude maybe Oct.

Here is why that spread worked on Tuesday.


Quoting 
Aug 11 (Reuters) - Heavy damage to the largest crude distillation unit at BP Plc's 413,500-barrel-per-day (bpd) Whiting, Indiana, refinery will require at least a month to repair, sources familiar with the refinery's plans said on Tuesday.

The sources stressed that the time frame for the CDU's restart was preliminary and may change.

"I would expect longer rather than shorter," one of the sources said.


Quoting 
The Whiting crude unit outage was said to contribute to U.S. crude's fall of $1.88, or more than 4 percent, to $43.08 a barrel, the lowest settlement since March 2009, and about $1 above the 2015 contract low on March 18.

RBOB gasoline in the New York Harbor was virtually unchanged from Monday at $1.6937 a gallon, but up 7 cents a gallion from Friday's finish.

UPDATE 3-BP's main crude unit at Whiting shut for at least a month -sources | Reuters

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@ron99 Thanks for the input.
I really missed the fact that RB is inverted almost all year round due to its demand (or so they say). So it was really a "guess" call.

I have an open question:

I am trying to understand how Commercials Net Position affect prices in Contango and Inverted markets? Does anybody have an input on this? I mean, it makes sense to me to see a Net Long position in Contango but maybe somebody could share a setup not only in CL but other instruments (ie grains, gold, etc).

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Futures Mag: (EIA) Report: Crude supply to outstrip demand through 2016

Report: Crude supply to outstrip demand through 2016 | Futures Magazine

Crude oil prices continued their slide yesterday mostly driven by the surprise devaluation of the Chinese currency. This action by the Chinese government sent a message to the world that all is not rosy in China and stimulus and monetary policy actions will continue to be the norm.

So far in early morning trading, prices are rebounding modestly on a supportive monthly oil market forecast issued by the International Energy Agency (IEA). The IEA forecast showed a stronger than anticipated level of global demand as well as non-OPEC crude production moving into a modest contraction in 2016.

More...

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As I mentioned I don't like having positions close to the front because that's when fundamentals can really distort the curve and there are companies out there that have a significant advantage in the fundamental picture. Remember CL now represents the price of crude at a constrained delivery point and is no longer the world benchmark it used to be.

The thing that would concern me about putting on any significant front end spread play currently is where the butterflys are trading. UVX is trading +27 as we speak, VXZ is trading -10 but then the next 5 flys are all around -6. That's a rather strange relationship and implies to me that something not normal is going on. Why is Sep/Oct worth 27 more than Oct/Nov when the market is apparently as weak as it is? But then Oct/Nov is worth 10 less than Nov/Dec which is maybe more what we would expect. When Sep expires, is the same dynamic suddenly going to apply to Oct/Nov, or is Sep actually holding Oct/Nov up and when it expires that spread plummets?

Saying all that .. interestingly Brent seems to have a very similar structure which might imply it's not purely a Padd II crude issue.

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@SMCJB do you take positions for the following quarter then?
Isn't that a bit risky in CL considering it lacks seasonality?

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