Cold weather ahead, but UNG upside limited

Very recent articles have been written about an incoming cold spell driving up NG.  But I don't see much upside with a lot of supply near 19 and above on UNG.  Also, my machine learning algo has not called a reversal yet, and it is surprisingly sensitive to them, so I'd continue to short-sell rallies like this one for lower prices this Winter...

SI/ SLV finally breaking down

Been positioned for a crash since September and looks like we're finally breaking down for a collapse!

USO/ CL ready to rip to $65+

Been calling it all quarter for 52-week highs, a move much higher by end of year, end of Q4 - here we go!

UNG breaks down $18.00 as predicted

Earlier than expected, natural gas broke to multiyear lows last week.  Though its current attempt at bottoming is the strongest I've seen in over a year, the shear amount of supply above has me feeling lower price in the intermediate term...

UNG/ NG futures bearish intermediate term

My proprietary indicators show that natural gas's bull market that I had been calling since the Summer likely ended in early November.  My statistics show an impenetrable layer of selling at the late October highs above 22.50 in UNG.  But there are high levels of limit order concentration within this past year's range so I expect bounces like the current level of $20.00 can provide short-term support over the next few days.

But these proprietary technical do not portend well for NG looking into early 2020, and I would expect $18.00 to be taken out by mid Q1 2020...

USO/CL still on track to challenge 2019 highs before end of Q4

The crude oil market's initiative volume is currently accelerating and eating through high concentrations of limit order resistance; it looks to make a move to $61.50 before a stab at the highs in the next few weeks.

GS and Russia jumped on the bull bandwagon earlier this week.

Still think SI/SLV is at a very high risk of crashing very, very soon

Still think USO/CL going to new HOY by end of Q4

Still think CL/USO is going to bottom out and shoot above $65 before end of Q4

SLV is crashing!

CL/ USO going to high of year

Crude oil futures are headed back to the yearly highs and likely to break them in the forseeable future.  OTM calls above the yearly highs are in play, dated 3-6 months out.

SLV/ SI futures are going to crash ASAP

OTM puts on SLV or SI is free money

UNG/ NG futures continue to murder short-sellers from earlier this summer

I was all over that bottom

PPLT/Platinum futures up 10%+ in 4 trading days

If you're not taking profit/closing position, you're allergic to money

Get long PPLT/Platinum futures OTM calls

Most SLV OTM calls have doubled

UNG/NG finally ready to breakout to the upside!

SLV - OTM calls time

Still waiting on NG to reverse and ram the shorts a new orifice

Re-iterate long NG/UNG again

Double-bottom is a freebie.  If you're not long nat gas otm calls here, then you're not a fan of free market capitalism.

Reiterate UNG/ NG otm calls

The target in the previous post was hit delivering large returns in days.  A new target of $22+ should be expressed through OTM calls.

NG sh squeeze highly likely

With G-20 upon us and trade deal uncertainties abound, and the largest short position in NG futures in 3 years, on top of a surprisingly warm short-term weather prediction boosting prospective air conditioning demand that was later tempered, NG is certainly in a position to move higher.

After breaking through the 20,2 Bollinger lower band on the highest down-day volume since early Feb (which also created a tradeable intermediate-term bottom), UNG gapped higher yesterday leaving fresh large short positions from the previous week under water.

I would expect UNG to test $20.50 in the next few days/weeks.

CL to short-cover to mid 59s

A combination of global-macro factors have converged on WTI creating a scenario with good probability of further short squeeze to mid 59s, the confluence of the upper Bollinger Band (20,2), 50-SMA, and 200-SMA.

GLD/Aug GC extremely bullish

It doesn't require a highly sophisticated technical analytic system to see that gold is aggressively pursuing multiyear highs.  A combination of changing perception about increased likelihood of a Chinese trade deal as well as Fed Fund futures pricing nearly 100% odds of a rate cut in July have created a "goldilocks" scenario for GC.  Deep OTM calls are the only way to play.

Metaphysics of daytrading

CME markets facilitate trade through the Centralized Limit Order Book (CLOB).  CLOB is a matrix of limit order amounts that constantly change based on idiosyncratic constraints of the participants, inside bid/ask changes, news items, and events in correlated markets.

Scenario 1: Inside Bid/Ask Changes

When the amount of posted limit orders at a price level reach 0, the next best price becomes the "inside" bid or offer.  This "race" to 0 is what causes dynamic shifting of the bid and ask which translates into the best prices that market orders can transact against leading to the last quoted price up (at the offer) or down (at the bid).  Generally, HFTs and market-making firms are aware of how much size they contribute to the overall posted liquidity and assume inventory risk to be able to capture spreads.  But when an outlier/skew of aggressively-sized and one-sided initiative market orders consume that posted liquidity, this sudden impulse may cause large disturbances in posted limit orders at nearby and even further out levels.  HFTs interpret this data as a possible change in volatility and must modify their mass quotations to account for increased risk and to make sure they do not overly contribute proportionally to posted liquidity.

Scenario 2: External Events

News items and price moves in correlated markets are externalities that cause participants to modify exposure through limit or market orders based on these events' consequences on their valuation models with optimal execution as a secondary consideration and the primaries being recency of the catalyst and potential price impact.  At this point, price performance behaves as a Random-walk with drift or a Martingale with little-to-no autocorrelation, meaning previous price movements don't predict future performance.

The statistical profile of the endogenous supply/demand may not change significantly in the latter scenario though price performance may be significant.

Only in the presence of such a statistical shift viewed as a complex event and an outlier with meaningful context accompanied by or without the events that comprise Scenario 2 can a clear daytrade be taken.  This is a situation where high price discovery power within the internal supply/demand of the market of interest leads to a high probability of a Partially Observable Markov Decision Process (POMDP), as opposed to the Martingale of the external event case.

In the rare case that the market behaves as a POMDP, an outlier in endogenous supply/demand is occurring with a high probability of impacting nearby participants in a similar fashion (impacting their inventory constraints) and causing a chain reaction/mini-contagion.  In this situation, price performance exhibits autocorrelation with respect to recent trading.  As HFTs and other participants reduce their exposure, market facilitation rises with a spike in potential price movement.  Specifically, more price levels are attainable per volume unit as the race to 0 at each level occurs more quickly.

If a market is experiencing low price discovery power, it is likely trading with a Martingale or Random-walk with drift component and the endogenous supply/demand will not provide strong trade signals as autocorrelation may be low or non existent.

Finally, it would seem that AI methods especially reinforcement and meta-reinforcement learning would only apply to the sparse reward cases of POMDP.  Automated and intelligent methods that identify huge imbalances leading to high price discovery power in the near- and short-term can reduce cognitive load on the human trader.  Similarly, automated tools can highlight times where the market exhibits low price discovery power and a Martingale process.

Oil down over 6% - motherfuckin' right

Not bullish for more than a daytrade for the forseeable future...

Houston, we literally have a problem

It's no secret Trump has pushed his Energy Dominance agenda since Day 1 of his administration through aggressive legal and enforcement tactics as well as corralling CEOs of the nation's energy companies to invest and expand.  Much of the crude oil rally since the December lows has been contingent on prospective and expected WTI demand from China.  In the NG market, a bullish boon has been greater prospective LNG demand from Asia as well.

The disintegration of the trade deal has recently led China to reconsider the US as a major supplier of energy since in the current state (Huawei sanctions) depending on North American business seems to carry heightened long term risks.  An article came out today about a paper published by a Chinese periodical run by the State questioning the role of the US as a major energy trading partner amid rapidly deteriorating trade relations.  Today, Reuters quoted the EPD CEO that Chinese oil traders and refiners no longer want to sign long-term supply agreements with US producers. Obviously, this change in sentiment presents newfound risk to companies who have been investing in energy-related infrastructure heavily dependent on future Asian demand.

Honestly, I think the equity prices of these corporations will continue to get smoked until the CEOs tell trump, "Look you son of a bitch, we invested like you told us, now sign a fucking deal."  At this point during the Summer I think he will acquiesce since these folks represent a major portion of his base for the next election cycle.  I've always thought Trump's real agenda was to use oil dependence as a weapon against other countries to accomplish his political goals.

The technicals are especially bearish on a short-term and foreseeable future perspective for CL.  NG is also breaking down and I don't see any reason to be long.

On a similar note, the rally in equities since December has also been largely anticipating a trade deal but the details on how an agreement would impact industrial or especially technology stocks was always fuzzy.  However, for sure the deal would include large off-take of WTI and LNG by the Chinese.  This view is currently disintegrating which makes the hopes behind the equity rally at large appear to burn up into thin air causing a crash.

NG short-term bullish next few days/weeks

Since April 25th, there have been several days in the June contract when the commercial hedgers (in my view) have applied downside pressure to the market with little-to-no follow through.   A flurry of aggressive accumulation has limited downside later in the day on several occasions.  This activity has resulted in relatively buoyant NG prices after cash hit multiyear lows in late April.  

But today there was a consistent stream of hedger buying with solid follow through, and I cannot recall the last time seeing this in 2019 considering the heavy multi-month downtrend.

The daily NG 06-19 chart shows the True Range on reversal day 4/25 was greater than any reading all month until that day which is a common pattern I have been seeing in other instruments experiencing a recent trend change (ie VIX).   

The RSI(7) on the NG and UNG daily charts has crossed the 50% mark after putting in higher lows like Feb 20th which led to further upside days/weeks later, and the market is trading above the 20-SMA for the first time since mid-March showing unusually relative strength and a possible change in supply/demand.

I see 2.700 as resistance and 2.72 handle after that near the 50- and 200- SMA lines which are nearly intersecting.  OTM calls and calls spreads present good risk:reward trade opportunities at this point.

The fundamental picture is less clear than the technical picture painted above:

1.) Nat-gas production in the 48 states has been trending higher relative to last year since the injection season started

2.) EIA inventories has been coming in higher than expected over the past few weeks.

3.)Tight supplies at 17.8% below 5-year average, but the injection season has lessened the constraint so far this season.

4.) Permian oil production has released excess nat-gas causing elevated flaring; NG prices in the Permian have even gone negative due to pipeline constraints.  

5.) LNG exports have been trending up sharply this year with expectations of further gains in the medium and long term.

6.)Large projects like port facilities to export LNG have faced delays/cancellations due to inability to price debt with disagreements about a benchmark.

With tight supplies, a weather-related shock can overwhelm the outdated NG pipeline infrastructure causing regional price spikes.  A perfect storm may be currently brewing as the Midwest and Northeast are expected to have cooler than normal temperatures in the next few days and the Southeast and mid-Atlantic higher than normal which could potentially put a squeeze on NG power plants.

CL short-term bearish

The oil market continues to provide more drama than a Kardashian family reunion.  A few weeks ago on behalf of his allies outside of OPEC (OPEC+), Putin mentioned that although there were no plans to significantly increase oil production yet, macro risk factors like Libya unrest, Venezuelan embargo, and Iran export waivers could change production compliance going into the June cartel meeting.  Since then, conflict has escalated in Libya and Trump surprisingly granted no Iran waivers past May 2nd though he claimed to have a conversation with Saudi Arabia and UAE to supply the market should a shortage occur.  The latter event was considered a black swan by many participants seeing June CL rise over 2% past $65/barrel on Sunday overnight trading after the long Easter weekend.  In response, Iran has threatened to close a major canal that can bottleneck 20% of global crude oil flow.

This binary outlier upside risk has increased the noise in OVX considerably over the past 3 days as traders bid up deep OTM USO option premium allowing the index to close above the 20-SMA 2 days in a row for the first time this month.

On Tuesday, I saw hedgers accumulating CL, but today, I witnessed the opposite as I rode CL lower into and after the EIA number which showed a surprisingly high WTI build while gasoline inventories shrank.  

At this point, I believe the risk that deteriorating OPEC+ compliace into a slowing global economy is the outlier more likely to be priced into CL in the near/short-term despite Saudi Arabia saying that tighter Iran sanctions do not necessitate immediate action.  The Iran waivers don't expire until May 2nd, so Iran has some time to negotiate in addition to other countries who would like to Trump to reconsider waiver extension.

Per an earlier post, "Additionally, XOP's RSI(7) fell more than 10 points today which has led to further downside 1-2 trading days later every time this happened since January predicting we will take out today's lows in the June contract in that timeframe."  This signal occured again today; first target is $65.25, then $65.09, the 50% retracement of the move up since late last week, and $64.75 is the 61.8% retrace.  It'll be interesting to see if we flush down to $64.30 if $65 is taken out.  I wouldn't be surprised with all of that aggressive call buying per OVX on the move up this week, and now that premium is fading leaving hedge funds holding the bag...

The chart below shows June CL with an overlay of OVX and both 2-day historical volatility and true range studies below.

CL finding unusually strong near-term support

I had expected May CL to have tested $62.85 by now, but the marginal new multi-day low today at $62.99 was met with surprisingly high book thickening.  Additionally, OVX did not make a higher high today despite CL making a marginal low which aligns with decreased volatility related to a thick order book.  This liquidity may suggest widespread confidence in a bullish EIA number tomorrow, especially on the gasoline side since the crack spread trended significantly higher since last week and the gasoline inventory draw was much larger than expected.

CL retreats

May crude oil made a sizeable move down today toward my short-term $63.25 and $62.85 targets.  I noticed hedgers entering the market with shorts yesterday morning though the book was unusually thick, resilient, and resistant to intraday trends even on the EIA inventory release which came in at a signficant inventory build, but less than last week's number as I expected in my previous post.

Today's trading saw the order book become considerably thinner between 10:15 and 10:30am, which was an outlier compared to yesterday's thick trading.  Also, the OVX index (VIX for USO), not exactly a barometer of industrial user trading activity but an event stream that captures funds in the equity space attempting to gain WTI exposure, tested 1 standard deviation below the 20-day Bollinger Band a few days ago and held above this level before putting in the highest % change of the month in today's trading.

Additionally, reports came out today that Saudi Arabia/OPEC+ was considering increasing output in July, which aligns with bearish implications in my last post.

I would expect CL to easily take out those targets with further support at $62.40 and $61.85.

CL update - short-term bearishness, longer-term crash probable

Like I had mentioned in early March, "I also wouldn't be surprised if the late-day buying today was hedge funds and other speculators buying in very late into the rally as I have seen them enter the market later in the day at unpropitious longer term prices a few times this year.  But this doesn't mean that the short-term upside momentum won't continue a bit longer..."  This hedge fund buying continued the rest of the month with hardly a significant pullback blowing past the 200-SMA, and reports came in early April that hedge fund buying had stepped into crude oil in late March leading into the upshot rally into the mid 60s now.  Because the market has rallied without much pullback on mostly OPEC+ rhetoric and delivery on supply cuts especially in response to global growth projection downgrades, the market is increasingly susceptible to a pullback in an overbought state in light of abundant global storage.

Rig counts and satellite/mobile data sources have shown a spike in future shale oil production over the past few weeks taking advantage of lofty spot prices.  It seems that this market is extremely susceptible to bubbles and as these hedge funds inflate it while the longer-term ample supply fundamentals reassert themselves amid increasing US supply, it's not difficult to predict another crash by Summer.

Yesterday, a Saudi energy minister said they are comfortable with their level of supply cuts at this point, a change in tone compared to all of the rhetoric heard earlier this year.  And in March, OPEC+ decided to forgo their next meeting and wait until June to decide on further production cuts.  Today, the IMF downgraded global GDP from 3.5% to 3.3%.  So there is reason to believe the market will react negatively to these two developments.  

Of course, EIA reports the inventory number tomorrow which has been leaning toward surpluses lately and the crack spread was trending higher last week while there was a resumption in the oil tanker traffic off-taking exports in the Houston Shipping Channel post-benzene spill.  So there is some reason to believe the inventory build may be less than last week which is not entirely bearish.

Additionally, XOP's RSI(7) fell more than 10 points today which has led to further downside 1-2 trading days later every time this happened since January predicting we will take out today's lows in the May contract in that timeframe which goes against the recent pattern of 6/8 most recent trading days did not take out the previous day's low.  How about a first target of $63.25, then $62.85?

Who's bearish on CL?

Successfully trading physical commodity intermediate-term trends requires a dual-view approach.  

1.) Keeping tabs on changes in supply of the commodity for physical delivery as much price discovery in the front month contracts is related to the constraint of having to deliver physical.

2.) Monitoring larger supply/demand trends that will take shape and impact commodity prices over the longer term drift.

On changes in physical delivery supply, OPEC+ production cuts have aggressively aimed at counterbalancing rapidly increasing US production and tepid global demand.  And their use of shock tactics to overdeliver on cuts and compliance while focusing on constricting US imports coinciding with reduced self-inflicted US imports via sanctions seems to finally have succeeded in causing larger than expected draws in weekly API and EIA reports recently.  Goldman Sachs and Morgan Stanley have recently reiterated the oil bull case in light of these numbers.

However, global supplies and even those in the US are clearly overabundant per this Orbital Insight report.  So all of this OPEC+ effort may have changed the near-term trend in US inventories, but there is a very long way to go globally, especially in Asia.

On longer-term supply/demand trends, the major reason for the price collapse in Q4 2018 was related to rapidly decreased demand perceptions.  Oil has traded in line with US equities with a very strong correlation, an excellent proxy for domestic economic growth and demand for energy.  Should US equities begin to reflect much slower economic growth than anticipated in the rally this year, this sentiment change will almost surely drive WTI prices lower as the primary demand driver is still domestic, though global demand should increase its influence on CL's price later this year and next as supply/chain bottlenecks improve clearing the way for increased export, and the spread between crude in Houston and even Cushing with respect to Brent falls sharply.

And I have strong reasons to believe that US equities are entering a primary bear market downtrend as of right now.  So even though CL has been able to rally in line with US stocks as there was a recovery in US growth and energy demand perception in addition to aggressive OPEC+ production cuts targeting US storage, a change in that economic demand perception is on the horizon amid a sea of excess global oil supply.

To be sure, even a longer-term view of oil from supply-side economics points to ample supply and fleeting, lofty oil prices in this report.

With the 200-SMA above at $60.88 for the May contract, I would anticipate limited upside and longer-term downward drift punctuated by sharp short-covering rallies for at least the next couple months on EIA/API numbers being impacted by the full force of OPEC+ influence.

CL makes new ytd highs

This past Friday as CL broke below the first primary support at $55.00, it felt like there was a reservoir of liquidity, limit orders to buy the contract.

OPEC+, especially Saudi Arabia, has resorted to announcing production cuts and significantly underdelivering on those giving the market short-term upside surprises to counteract increased US production and a slowing global economy and lower demand projections.  This rally since end of December can be characterized as a string of short-term bumps related to the surprises which will eventually run into oversupply/underdemand issues in the future.

A prospective US stock market downtrend will provide downside pressure in CL over the next few weeks/months as the product finally tops out.  I'm not sure how much more output cut panicky OPEC+ and especially Saudi Arabia can afford with their large deficit.  They seem to be panic-cutting for the very reasons I have stated that a longer-term downtrend is around the corner.

I wouldn't be surprised if the contract has also been supported by the CERAWeek convention in Houston this week which has boosted XLE, XOP, and OIH.  But this short-term support will alleviate by end-of-week.

I also wouldn't be surprised if the late-day buying today was hedge funds and other speculators buying in very late into the rally as I have seen them enter the market later in the day at unpropitious longer term prices a few times this year.  But this doesn't mean that the short-term upside momentum won't continue a bit longer...

NG hits primary targets

Last Wednesday night said, "I would expect April NG to test 2.822 tomorrow and 2.80 within a couple days max.  Next support after that is 2.787 and 2.760 near the 50-SMA"

These targets were hit today, and with the very sharp decrease in day-over-day RSI(7), I would expect NG to at minimum retest today's lows of 2.766 tomorrow.

Where's all the exported Crude?

In late Feb, US oil exports made headlines breaking all-time records 3.6 mmbpd+, but China isn't directly buying any of that supply right now because of the trade war.  There's a significant amount of WTI sitting in worldwide storage not accounted for in EIA's estimates, and I'm wondering if the trade agreement isn't signed or executed by the Chinese by summer driving season starting in early April, are oil traders going to ship back and dump it on a US gasoline market that's probably going to see lower demand this year compared to last as we've seen GDP and corporate revenues fall year-over-year?

This is a significant outlier risk that I don't believe is priced into WTI (yet)...

Update on NG - short-term bearishness

I last commented on NG almost one month ago after the March contract had moved toward multi-month lows.  I speculated that a retest of the lows would set up a long opportunity should the temperatures in Raleigh, NC hit lows in the 20s and highs around 40 maximum.  The contract never actually tested those lows and drifted higher for the month as colder weather hit the Midwest leaving the South largely unaffected until today (lows in 20s and highs low 40s) and these past few days.  Today, 1.5 month highs were made near 2.90 for the April contract.  But the Google app shows a strong projection of unseasonably warm temperatures in Raleigh, NC for the next week and a half.  

Also in the meanwhile, U.S. nat-gas inventories have already shrunk as nat-gas stockpiles on Feb 22 stood at a 9-1/2 month low of 1.539 tcf, down -8.5% y/y and -21.6% below the 5-year average.  And tomorrow's weekly EIA inventory data is expected to show that U.S. nat-gas inventories fell -144 bcf last week, a bigger draw than the 5-year average of -109 bcf.

For the first time since before February 7th, I witnessed what appeared to be aggressive commercial hedger short-selling at key times this morning in the April contract after hitting a multiweek high.  In the context of the coldest temperatures in Raleigh for many weeks today and a projection for much warmer weather ahead, this activity is contrarian and bearish in the short term.  NG had tested the upper Bollinger band a few days ago.  Regardless of the EIA inventory data release tomorrow, I am inclined to short-sell NG for day trades if the opportunity arises knowing there is a good chance we will test 2.80 over the next couple of days.  The RSI(7) is coming off extremely overbought territory and registered about -15 day-over-day, and going back to December when the day-over-day spread was -10 or less and as long as the RSI wasn't oversold, the following trading day has always tested lows by 1 tick or broken through it - every time.

I would expect April NG to test 2.822 tomorrow and 2.80 within a couple days max.  Next support after that is 2.787 and 2.760 near the 50-SMA

CL ready to fall in short and intermediate-term

XLE and XOP had very high odds (100%) of putting in higher lows and higher highs today with RSI(7) day-over-day spread from last Thurs to Friday at 10+.  Since Dec 26th, this type of momentum spike never led to lower lows until TODAY.  Additionally, many other non-oil related equity sectors had very strong odds of putting in higher lows today based on various momentum statistics but many of them took out Friday's lows and actually closed significantly lower which is a clear break from the regime that began Dec 26th.  This loss of upside momentum in all types of equities supports my thesis that equity prices are set for an intermediate-term downtrend which, in turn, will place proportional downside pressure on CL to move toward the December lows in the intermediate term (weeks/months).

In other CL news, Baker Hughes that showed active U.S. oil rigs in the week ended Mar 1 fell by -10 rigs to a 9-3/4 month low of 843 rigs continuing their downtrend since last Fall lending to the possibility of a slowdown in US WTI production in 2h 2019.  This possibility would bolster the bull view for 2h 2019 in light of sharp OPEC+ supply cuts especially to the US year-to-date, in addition to improving global demand conditions as a Chinese recovery and reduced Eurozone Brexit risks to economy may offset a slowing US economy impact on worldwide oil prices.

But the supply chain between the Permian and Gulf Coast ports through pipelines and expanded port capacity won't further support export demand until 2h 2019-2020.  Until then, logistical bottlenecks will continue to leave US domestic demand as the major consumer of WTI until later this year.  So the exposure of WTI demand to US economic growth (equities are forward-looking proxy) leads me to believe we have significant further downside until export demand can begin to buffer WTI price from US demand somewhat.  The WTI Midland-WTI Houston and Cushing-Brent spreads would decrease significantly as WTI grows into an international oil grade enabled by supply chain improvements.

I also noticed before 1030am on Friday that CL saw large blocks find no bids (in increasingly unaccommodating book) identical to trading that occurred in NQ, ES, and YM at the exact same time.  This increase in correlation to nearly 1.0 did not go unnoticed and bolsters my thesis that equity weakness will carry over into CL.

So in light of that highly correlated weakness witnessed this past Friday, surprisingly weak XLE and XOP (and other non-energy related equity) trading today negating the recent regime, and an expectation of weakening US equities in the short and intermediate term, I expect CL fall precipitously in the short and intermediate term.  Beyond the obvious $55.00 support which should break soon, I would expect mid $52s to provide some support as a confluence of previous support, Bollinger Band (20,2) lower band, and 50-SMA.

CL short-term and longer-term views

As predicted, CL tested the mid-55 level today and actually broke into the lower quarter near the 20-day SMA support.  There were very easy day trade shorts in the contract this morning.

XLE, XOP, and OIH all found support today as CL fell.  The last time we saw this non-conformation was on 2-12 which led to some short-term buoyancy/upside for the next few days in the energy complex.

Factors that impact the longer-term trend:
1.) Increasingly mixed economic data from US, Eurozone (heightened by Brexit uncertainty), and China has motivated OPEC+ (especially Saudi Arabia) to proactively cut exports especially to the US.  These cuts take into account prevailing US production and export figures especially from the Permian concurrently spiking to all-time highs.
2.) Trade agreement between China and US will probably include increased demand for WTI exports.  And Chinese capital ratio stimulus in January seems to be working suggested by FXI and Shanghai Composite rallies year-to-date.  A rebound in the Chinese economy is becoming increasingly probable later this year which would buoy that trade agreement.
3.)The Fed expects a slowdown in US economic growth this year leading to a pause and "patience" in rate hikes.

Synthesis:
At this point in time the major proportion of demand for WTI comes from the US, and I expect an economic slowdown in the forseeable future which will depress physical demand at Cushing.  Later on this year as post-Brexit uncertainty subsides (buoying Brent) and a Chinese economic rebound ensues (boosted by the cap ratio cut and a prospective trade agreement) followed by increasing US exports, foreign demand will play an increasingly important role in CL price discovery as Permian-Gulf Coast pipelines come on-line and port capacity is expanded -- but not quite yet.  Yes, OPEC+ cuts and other geopolitical events have limited heavy dark, sour oil from being imported in the US, but the supply of US light, sweet product continues to build up in storage at Cushing.  A lot of gulf coast refineries mix imported dark, sour product with WTI to produce gasoline.  They have the option to source dark, sour elsewhere or switch infrastructure to support more WTI.  Either way, the rate-limiting reagent is heavy, sour oil in an expanding light, sweet reservoir thanks to Permian production.  There's not much OPEC+ can do to directly impact light, sweet crude oil supply and potentially inundated physical buyers at Cushing.


Despite the possibility of a short-term bounce, I am confident that the equity markets are extremely close to a longer-term top and a prospective volatility spike which will fuel correlated oil selling, reasserting the longer-term downtrend.  So for the time being, I continue to believe that WTI will need to retest the December lows in another bear market intermediate-term downtrend leg before other forces like a rebounding Chinese market primed to buy US oil exports and post-Brexit reduced volatility in Eurozone boons Brent prices from a demand perspective.  

CL to fall and retest mid 55s in short-term

I was short April CL after the EIA number for a ride down to new lows on the day.  XOP lost a lot of upside momentum today as the daily RSI(7) fell by almost 16 points compared to yesterday's reading of 67.8930.  The last 2 times it has registered day-over-day losses of this magnitude in this regime since the December bottom, WTI has seen tradeable short-term weakness 1-2 trading days later and I expect no different this time.

CL tests multiweek highs

CL did test the lower quarter of 51 handle this past Monday.  At the same time, XOP did not confirm new local lows killing the short-term downside momentum, and the crack spread has widened out to multiweek highs.  Additionally, equites are very overheated and look to putting in a blow off top in the coming days next week.  This risk-on momentum buoyed WTI this week.  I don't expect this retest of the local highs in mid 55s to last, and as soon as equities top out, CL will resume its nasty rollover.  I view this move a test of previous highs in a longer-term topping formation.

CL small gain on day

I had long day trades in the contract but its activity today still has me bearish short and intermediate term.  The crack spread's spike to multi-week highs maintained a slight bid in the underlying.  I see support from previous local lows, the 50-SMA, and Bollinger Band (2,20) lower band at around $51.00.

NG cash market approaches 2018 lows

The Henry Hub cash market fell over 4% to 2.552 today putting it within striking distance of the 2.48 2018 low.  The first surge down occurred overnight followed by another leg down as a reaction to the storage number at 10:30am EST.  Interestingly, the March-April spread has gone negative for the first time in this calendar year's history suggesting commercials pricing in ample supplies by end of Winter.  The key assumption being that unseasonably warm temperatures continue...

If the market probes those 2018 lows, I would be looking to buy OTM calls for a short-covering rebound in prices reacting to a mean-reversion in Southern temperatures since it is still technically Winter.  The Google temperature mobile app is a good indicator for when temperatures will drop enough to cause short-covering.  I'm looking for a prediction of lows in the 20s and highs no greater than 40s in Raleigh, NC.  I've noticed a strong inverse correlation between Southeast temperatures and NG prices this year since inventories are currently 17.5% below the 5-year average and at almost 8-month lows.

Crude oil weakens led by XOP

Softening Eurozone economic data and news from the Trump administration that he may not meet Xi for possible trade resolution until March caused a sharp sell off in the Oil Producers ETF, XOP.  This index broke through 2 standard deviation lines today after failing at the 50-SMA which is very bearish short-term in a longer term bear market punctuated by a bear market rally since late December.  This slide could mark the beginning of the next primary bear market downswing in the energy space - oil derivatives and energy equities.

Crude Oil - Big Picture

From the middle of 2014 to early 2016, WTI fell almost 75%.  Oil inventories were very high because of overproduction as shale sources increasingly came on-line.  OPEC did not cut output at this time to try to squeeze the small US frackers whose profit margin was destroyed in the meltdown.  At the end of 2015, crude oil export was legalized and the price rebounded for almost 3 years driven by a booming US economy.  In the Fall of 2018, another market swoon hit as threat of a US economic slowdown materialized and again supplies were high due to shale production.  But this time, OPEC did initiate production cuts effective January 2019, yet the US (now the world's largest crude exporter) and Brazil continued to increase production.

Oil and equities have traded with a high direct correlation since the October top, and even on this rebound since December 26th.

CL tested the upper (20,2) Bollinger band 2 days ago, and price is pinned between the 20-sma and this upper band.  IV continues to drift lower, not showing signs of range breakout yet.  This past Monday, CL fell precipitously at key times after 8am which suggests commercial seller distribution, but today the market was supported by EIA.  I don't have a feel for the breakout direction, but do believe that a topping equities very soon (next few days) will lead to significant downside in both markets.

Natural Gas - Big Picture

Beginning in 2000 through the middle of this decade, natural gas was financialized through commodity ETFs and prop trading desks at hedge funds and banks.  This influence subsided just a few years ago thanks to Volcker and other regulations greatly reducing the ability of Wall Street banks to accumulate delta risk.    Since then, natural gas prices have resumed a seasonal trend of price spikes in the 4th quarter similar to how the commodity traded in the 1990s.

After a breakout to multiyear highs in mid November 2018, NG has pulled back below $3.00 typical of the seasonal pattern observed in recent years.  While trading near multi-month lows, NG has yet to show confirmation of a short-term bottom though its decline has halted over the past 4 days.

Intro post

The Federal Reserve raised the Fed Funds rate 4 times to 2.50% in 2018, the highest levels since the Financial Crisis, causing asset volatilities (realized and implied) to markedly increase.  Opportunities in proprietary trading not available earlier this decade have emerged accordingly, exacerbated by the Volcker rule and other regulations limiting banks with deposits at the Federal Reserve.

At the end of 2015, the federal ban on crude oil exports was lifted.  Since then, the US has become the world's largest crude oil producer and its de facto marginal supplier credited to hydraulic fracturing innovation.  Because of quality specifications and deliverability, growing international commercial trading interest in the American energy derivative space has caused the CME WTI futures contract to emerge as a formidable contender to be the global price discovery source in light, sweet crude oil.

US economic demand for crude oil may wax and wane cyclically against a backdrop of increased energy efficiency.  In reaction, domestic producers seek to diversify their customer base and tap into long-term global growth and continued demand for fossil fuels.  These newer foreign buyers are increasingly transacting in the CL futures market reflecting those shifting export fundamentals.  A changing participant pool with increasingly diversified market outlooks and views aligns with a fresh macro environment fostering volatility to create unique opportunities in CL for years to come.