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

  #2131 (permalink)
Market Wizard
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Hey Guys...

I'm wondering if anyone can point out Oil sector macro research, maybe industry insights and market expectations for the next few years. Perfect would be those sell side industry and economic reports that tiger trader used to post.

Thanks guys.
Dan

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  #2132 (permalink)
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Market maker crude curve trader interview only bits and pieces of value but still something .....https://m.youtube.com/watch?v=2Y0kq4P7c_E


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  #2133 (permalink)
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jokertrader View Post
Market maker crude curve trader interview only bits and pieces of value but still something .....https://m.youtube.com/watch?v=2Y0kq4P7c_E


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Thanks! Learnt something new

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SMCJB View Post
Thanks @CobblersAwls for the reply in my absence.

2. how to interpret them
They can be interpreted in many different ways. For example the chart you are linking shows the 18-30-42 fly (which is 12 month fly) versus the 18-42 spread. The 18-42 spread is a measure of curve steepness, but a curve's shape isn't linear, it's normally* logarithmic (for contango and -logarithmic for backwardation). As such this chart is showing that the butterfly was a lot cheaper than it had been historically given the current value of 18-42

* The forward curve is currently a rare M shape.

3. and sourcing the data?
I use Morningstar's Commodity Data Excel Add-In. Not cheap but makes analysis like this very easy.

All I need is the name of a textbook, a paper or author, or a hint
All done in excel. If you plot the forward curve/spread curve/fly curve etc, you'll quickly see some quirks in the shape of the curve. Then just dig deeper looking for statistical anomalies. It's a lot of manual work, especially if your data isn't in a friendly format, which is why I have a lot of this automated.


I just use settlement data. I'd be careful using T&S as it's rare that all the legs will trade at the same time. I used to do analysis of spreads/flys/structures vs time (days to expiry in this case) AND structure vs structure separately. Now most of my analysis is multidimensional where I'm looking at "structure vs structure vs time". I find 'R' very useful for that.

Thank you for this and the rest of your posts. Still working on this, looking at curves and charts every night, and also brushing up on my Excel skills.

At the moment I'm looking at avoiding and managing the flys that wander off and get directional early on, such as the one attached. I guess this is my biggest concern. Do you have any advice or hints where I should continue my search? I'm fine with doing my own homework and I have a maths background.

Also if you've read it, I'm also wondering if Doug Huggins book provides any techniques that may be transferable to CL? If yes then I'll get it this week.

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Last edited by adam777; March 21st, 2018 at 08:59 AM.
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  #2135 (permalink)
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jokertrader View Post
Market maker crude curve trader interview only bits and pieces of value but still something .....https://m.youtube.com/watch?v=2Y0kq4P7c_E

Interesting. He made it sound pretty easy if you have the information. I know if I was doing that interview I definitely wouldn't give away any secret sauce but there was a lot of implication and a lot less information in there. For example he mentioned that market making gives him an edge multiple times, gasoline in the med, crude with the nigerians, etc, but never discussed in anyway what that means or how they do that. His explanation of the OTC markets while maybe not inaccurate was definitely confusing as evidenced by Aaron Fifield's response. Saying all that it definitely gives non-insiders a peek into some of the inner workings of the oil market.

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  #2136 (permalink)
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adam777 View Post
At the moment I'm looking at avoiding and managing the flys that wander off and get directional early on, such as the one attached. I guess this is my biggest concern.

If I'm reading this right that chart is the Z 3456 double fly back in 2003. I was a NatGas trader back then so can't give you any personal recollections of what was going on. Personally though I do not trade any of these mean-reverting statistical style trades close to expiry. For my 6 month flys I have hard rules to start scaling out of positions 100 trading days (~ 5 months) prior to expiry with no positions at all in the last 50 trading days (~ 2.5 months). I don't have hard rules in the 12 month flys (since they are so much more difficult to trade) but I start reducing positions in those even earlier than the 6 month flys. For example right now I have a very small (<10 lots) z890 position, and will be reducing not increasing that as we move forward. If you look at the chart things went crazy for the first time in Jan2003, which is about 240 trading days before expiry, so I may have been caught in that. They went crazy the second time in Jul2003 which was only 70 days before expiry so I doubt I would have traded that.


adam777 View Post
Also if you've read it, I'm also wondering if Doug Huggins book provides any techniques that may be transferable to CL? If yes then I'll get it this week.

I have a math background as well, but I'm getting old and most of it isn't as fresh as it used to be. It's been a while since I read Doug's book, but if I remember correctly a lot of it went over my head.


adam777 View Post
Do you have any advice or hints where I should continue my search? I'm fine with doing my own homework and I have a maths background.

Specific to this type of trading not really. There's lots of equities style statarb/hft books out there, but to be honest most of it went over my head also. I watch a lot of the online video's, webinar's, podcasts etc which are generally educational, but very few if any, are as specific to what we are talking about. The space is so small there can't be that many people looking at it.

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  #2137 (permalink)
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Dallas Fed Energy Survey, First Quarter | March 28, 2018

https://www.dallasfed.org/research/surveys/des/2018/1801.aspx#tab-questions
  • Average prices necessary to cover operating expenses across regions range from $25 to $40 per barrel.
  • Average breakeven prices to profitably drill a new well range from $47 to $55 per barrel, depending on the region.

So at $65, keep drilling...

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SMCJB View Post
Specific to this type of trading not really. There's lots of equities style statarb/hft books out there, but to be honest most of it went over my head also. I watch a lot of the online video's, webinar's, podcasts etc which are generally educational, but very few if any, are as specific to what we are talking about. The space is so small there can't be that many people looking at it.

Would it be fair to say that the ideas and concepts themselves are not too complex, but that a lot of the skill in this form of trading comes from the risk management of the trades?

You briefly touched on some things that need to be considered, such as spreading risk through a series of flys, moving in and out of different parts of a position to capture kinks whilst maintaining your core position etc.

I guess what I'm suggesting is maybe there is enough info out there (your posts, curve advisor, info on other forums regarding butterflies) to start testing these methods, but the real decider will be how people manage their risk and positions based on these concepts. Would you agree?

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CobblersAwls View Post
Would it be fair to say that the ideas and concepts themselves are not too complex, but that a lot of the skill in this form of trading comes from the risk management of the trades?

It's not that complex it's just a different way of looking at things. The barrier to entry is execution and execution costs.

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CobblersAwls View Post
Would it be fair to say that the ideas and concepts themselves are not too complex, but that a lot of the skill in this form of trading comes from the risk management of the trades?

You briefly touched on some things that need to be considered, such as spreading risk through a series of flys, moving in and out of different parts of a position to capture kinks whilst maintaining your core position etc.

I guess what I'm suggesting is maybe there is enough info out there (your posts, curve advisor, info on other forums regarding butterflies) to start testing these methods, but the real decider will be how people manage their risk and positions based on these concepts. Would you agree?

I start this reply with "In my very limited experience .... " ... risk management wise it looks like the more complex correct spreads take care of themselves, ... and for the simpler correct spreads it looks like a matter of "can you handle the drawdown". I must admit this is for trading the chart and not looking for kinks in the curve. I have so much to learn.


Last edited by adam777; March 30th, 2018 at 11:56 PM.
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