The Real Price of Crude Oil

Some interesting commentary from Congressman Ron Paul (who really looks like he needs a nap) and Paul van Eeden regarding "real inflation"; the increase in money supply.

The only real answer for consumers in my opinion is to keep cash to a minimum and own hard assets.

Those assets being real estate, gold, commodities, and the companies that produce and finance those assets.

The talking heads on CNBC wouldn't shut up long enough to let Paul van Eeden speak. There is a better interview with him on BNN. Click on the post title or the read more icon at the bottom of the post to go the BNN video.

There is a lot to mull over from the two Pauls. Has the fed policy from Greenspan on all been a shell game that will eventually end badly? Or is it ending badly now? Has the, we don't have recessions anymore, policy of soft landings and hidden inflation all been accomplished by printing money?

Many questions and many different answers I'm sure.

My answer remains, in real or imagined inflation, hold hard assets.

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Alberta Needs to Save

Some commentary from the CD Howe Institute on the need for Alberta to save more of its oil revenues.

Click on the "Alberta Needs to Save" title for the full report.

Oil is Down, Oil is Up

The Asian and European trade had crude oil trading down to $126, and then the American trade moved it back up to $131.

There seems to be some "fear" in the market that the bull oil run may be close to over. Then the commodity bulls state that the run has just started.

RBC Capital Markets was comparing the oil run to the tech bubble that ended in 2000. That seems like an odd comparison to me as there is one significant difference in these two markets.

Companies can keeps issuing stock forever, oil is finite. So the old "it’s different this time" axiom may have a chance of holding true this time.

The bottom line for crude in the long term is not going to be determined by speculators, it will ultimately be priced based on supply and demand.

Price will eventually limit demand, and if demand falls enough for oil inventories to rise dramatically the price will fall.

I think.

The trading today was difficult as the price action was nervous. Meaning, price was jumping multiple ticks at a time and required either a large stop or a lot of patience.

I prefer patience rather than large stops.

It takes some experience to not get mesmerized by your technical indicators and take all the signals no matter what.

If price is jumping all over the DOM and just does not look like "normal" price action you are probably better off to stay out of the market.

Oil is Down (click on chart to view)

Oil is Up


The Alberta Disgrace

Alberta Venture
The World’s Greatest Savers
Vol. 12 Issue 5
Story by Wes Lafortune

"In little more than a decade, Norway has saved nearly $400 billion from its oil windfall, repudiating what some call the “oil curse.” What Alberta could learn from this frugal northern nation?"

Nice story from Alberta Venture magazine.

A little local politics here so you'll have to excuse me if your location does not lead you to care.

A couple of facts clearly point out the disgrace.

Norway started their Petroleum Fund in 1996 and its value has now reached 390 billion dollars.

Alberta started their Heritage Trust Fund in 1976 and its value is currently 16.6 billion dollars.

That is the disgrace.

The hope lies in Fort McMurray, Alberta. Canada's proven oil reserves are now ranked second in the world with the recent inclusion of the Alberta oil sands in the total.

We Albertans still have the opportunity in front of us to do the right thing.

The question is, do we have the fortitude, leadership, and the will to make it happen?


Energy Speculators Draw the Heat

"Members of Congress have joined the anti speculation bandwagon blaming speculators for high oil prices and have proposed legislation to curb energy trading." (click the read more icon for the full NY times story)

Whenever the government interferes with the market bad things happen.

Always have, always will.

Maybe they should increase margin requirements in the corn market as well?
Or is the high price of corn a direct result of government subsidized ethanol plants?

Perhaps congress should question farmers about the high price of corn, demand to know how much money they are making, threaten a "windfall" corn tax?

Or is farmer bashing not as politically advantageous as oil executive/speculator bashing?

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Crude Oil, Carbon, Climate Change

A very well done documentary on the history and future of crude oil, carbon, and the global climate.

They do make it difficult to distinguish between facts and theory.

I'm not saying the theory is right or wrong, but it should be identified as just that, theory.
(the sound is a little sketchy for a couple of minutes and then it works fine)

And now for the other side of the climate change discussion. The real problem with the whole global warming issue is that that the "discussion" is supposedly over.

That is truly insane, to not allow the debate on such an important subject is typical of an idea that has gone beyond science and now borders on religion.

Again theory and fact become hard to differentiate as both sides bend truths to make their point.

Keep your mind open as the cost to mankind is astronomical no matter who is correct.


Senators Challenge Oil Executives

Democrats on the Senate Judiciary Committee grilled top oil executives over their pay and warned that Congress was intent on taking action that could include a tax on so-called “windfall” profits. (click on the read more icon to read the full NY Times story)

I try not to get too political here, but I can't stand by without commenting on this one.

Blaming oil executives for the price of oil has got to be the dumbest thing I have ever heard of.

Taking the oil company's profit with a "windfall" tax could be the second dumbest thing I have ever heard of.

Are the senators going to take those tax dollars and go find more oil?

Any guess what the average price for oil was in 1998?


I guess the oil executives 10 years ago weren't smart enough to manipulate the price of oil to a more profitable level.

Where were the senators in 1998?

Maybe they were busy buying SUVs.

Where do they think the profits from publicly traded oil companies go? They go right back into the economy looking for, drilling for, and producing more oil.

What are the impediments to finding and producing more oil?

My answer, politicians and environmentalists.

Who pays for politicians and environmentalists?


You elect and pay the politicians. You give money to the environmentalists.

They both say you can't drill for oil here or there, you can't import "dirty" oil, you can't build nuclear reactors, you can't, you can't, you can't.

Meanwhile we, (I put myself in this category) have spent the last X number of years burning fossil fuels like there was no tomorrow.

Now what?

We all need to reduce our energy usage.

We need to move electricity production from fossil fuels to nuclear.

We need to allow the "greedy oil companies" to spend their "windfall profits" looking for oil anywhere they want to.

There are environmental risks in both the nuclear and oil production solutions. We need to mitigate these to the best of our abilities while allowing production to occur.

The choice is ours, not the politicians, and not the environmentalists.

We use the energy, we have to make these decisions. We can choose to allow the energy industry to produce what we demand. Or we can choose to impede the energy production we all need.

We cannot demand lower carbon emissions, outlaw oil drilling in certain areas, and then scream at oil executives because we don't like the price of gasoline.

I do have to remind myself every now and again that all politicians have only one agenda. Get re elected.

Ultimately that is their only concern, and if they can make some political hay yelling at oil executive then that is what they will do.

What they actually believe is anyone's guess.

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Crude Oil Trades Over $133

I have run out of adjectives to describe crude oil prices. Lets just say they went up.

There were several opportunities to get long today, I got in on the first move up and then passed on the rest of the signals. The signals after winning trade did not provide much of anything until the last 10 minutes of the NYMEX floor session.

Does that mean I was smart not to take them?


The fear and greed complex in trading is always at work, even when a trader has a nice profit. Instead of using the greed side and trading all the signals as I should of, I let the fear side enter in and say "no more trades".

With money in the bank you can justify this position, but, when the signals are not working and the losers start to stack up guess what happens?

The greed factor kicks in and says "keep trading, you'll get it back".


This is when you need the fear factor to make you stop. No more losers.

That is the rational for the trader needing to reverse the human fear and greed instincts in order to have any success in this business.

The inability to do so is the key theme for trading failure.

Trading is not about systems, it is not about indicators, it is all about money management and the battle inside your head.

Don't enter the war until you have properly equipped the army.

34 Tick Range Bar Chart (click on chart to view)

13 Tick Range Bar Chart


Oil prices: Wall Street's Game

Big fund money is flowing into oil markets sending prices to levels never seen before. Is it profiteering or an essential way to ensure supply?

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Another Crude Oil Prediction?

I believe I may have fearlessly predicted the top in crude oil on April 24, 2008, with oil trading well under $120.00.

So with that enviable track record on crude oil price predictions I shall not venture there again.

I will however, mention the daily candle formation today known as a doji. This particular candle formation is supposed to mean a change in direction is possible.

But I will make no such prediction.

The downward moves today were wild and fast, but by the end of the day price had crawled back up to finish basically flat on the day.

I'm glad I don't have to make that direction call, as every day, day after day, I just trade what I see.

Daily Crude Oil Chart (click on chart to view)

15 Minute Crude oil Chart

Since corn is now considered a fuel I thought I would take a look at the July corn daily chart. We also see a doji candle on May 9th and then see price moving down and through the 34 EMA.

All interesting items to note, but to place a long term trade to the short side in either crude oil or corn would take some courage at this time.

Eventually what goes up comes down.

The question remains when.

Daily Corn Chart


Crude Oil, New Day, New High

The 34 tick range bar chart did another nice job of identifying the trending periods and the flat periods in the crude oil session today.

As we have stated before identifying the trending periods is not that difficult for most trading systems.

Identifying when not to trade is usually the harder call, and the most important call.

If you were only looking at the 13 tick chart you would have had many more trades and, I would suggest, far less profit.

The 2 lines on the 34 tick chart show when the trend started and when we can start looking for entries on the 13 tick range bar chart.

We wound up the day with 3 full stops, 1 break even, and 2 winning trades.

The key to success today and everyday is letting the winners run. We had one R12 winner and the other came back on us for a R1 win.

34 tick range bar chart (click on chart to view)

13 tick range bar chart

13 tick range bar chart


The Oily Truth About America's Foreign Policy

With the oil price heading upwards and President George W. Bush heading for Saudi Arabia, as part of a Middle Eastern tour, it is time to accept the truth. The pursuit of oil is fundamental to US foreign policy.

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Oil Prices Are Up and Politicians Are Angry, Yawn

What can Washington do to reduce gas prices in the near term? The short answer, alas, is not much. While thepoliticians and oil executives accuse OPEC and wrap themselves with humongous financial packages. The ordinary people should take a different action, lock your cars and don't buy ask your employers to provide thetransportation.

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Crude Oil Hits New Record High

Great headline, all crude oil speculators must have made money.


Not me.

Losing day today with the big move happening in the "overnight" trade. (It wasn't overnight for them)

The Asian and European traders should have had a good day, and I guess I should have been to work at 4:00 am to participate as well.

The important thing for me to recognize today was that the signals were not working so I should limit my trading, in other words, preserve capital. Most traders, me for sure, can get caught up trying to recover losses by trading more than they should.

A nasty trading flaw known as revenge trading. A very bad idea.

I came away with 2 break evens and 2 full stops and called it a day.

We live to trade another day.

34 tick range bar chart. (click for better view)

13 tick range bar chart.


Bluegrass Trading

You can read about Ed Seykota in Jack Schwager's book, Market Wizards. His story is kind of interesting, if your interested in 250,000% returns that is.

More Oil, Higher Price?

The U.S. Department of Energy's petroleum report came out today showing crude oil inventories rising.

The crude oil response was to move up to its highest price ever, over $123 a barrel.

The efficient market theory is a wonderful thing as long as you remove humans from the equation.

While this is all fascinating it didn't affect my trading today. The report usually provides more range to the crude oil contract and while today's response was fairly muted there were still a couple of good trading opportunities.

I'm showing the 2 charts I watch throughout the day, the 34 and 13 tick range bar charts. I am looking for confirmation on both charts to trigger a trade.

The first trade wound up with a break even stop, the second was a nice winner with the ADX turning white as the exit.

You will also note I missed a nice move at 8:55, I wasn't paying attention and by the time I noticed it was moving so fast I passed rather than try and jump in late.

It happens.

34 tick chart.

13 tick chart.

13 tick chart.


Fear and Greed

Fear and greed are normally considered opposite emotions in the trading business.

Is it possible that fear and greed are both driving crude oil in the same direction?

The greed factor is easy enough to recognize, price is going up, buy buy buy.

The fear factor is normally looking to lock in gains, don't let this profit get away, sell sell sell.

What if the fear factor is also buying crude oil.

Imagine your country running out of oil; now imagine you're the leader of that country running out of oil. The drive to secure supply is becoming a major fear from countries like China and the USA.

You can't remove carbon from this economy without this economy collapsing; collapsing to a level we have never seen.

That is why wars have been, are currently, and most likely will be fought again over crude oil supply.

That may be the fear that is rowing right beside greed in this oil market.

Crude Oil Range & Liquidity

What to trade, what to trade.

Why do I trade crude oil instead of the Russell, Dow, or S & P futures?

Two words; range and liquidity.

If you look at the bottom of the daily chart posted you see a little number, 4.21. This number is the 5 period (in this case days) average true range of the crude oil contract.

In dollars it means the daily average true range over the past 5 days is $4210.00. You can use 5 days or 10 days or whatever number you want, but I would encourage all traders to take a look at this number on the contract they trade.

If you are only going to capture a limited percentage of a contracts daily range, does it not make sense to try and capture that percentage out of a $4000 range rather than a $2000 range?

Liquidity is the other prerequisite to trade and crude oil has more volume than most equity index futures other than the big daddy, the S & P futures contract.

While the S & P has more volume check out the range and see how it compares.

Oh and the eternal question for crude oil again, how high can it go?

To infinity and beyond.

Trade the plan.

(click on chart for better view)


Trade the Plan

How do you have a $500.00 winning crude oil trade and feel like an idiot?

By not following your plan and missing the $930.00 that came after your brilliant exit.

The trader in charge (me) was watching the 8 EMA and the CCI 100 line cross and came to conclusion that he should move his stop to protect profit.

The ADX, who is not in charge, said there could be some more downside here, lets hang on until I turn white. Which is how the trading plan is written based on hundreds of trades showing that this is the best exit.

I don't mind leaving money on the table when it happens within the confines of the trading plan, but when I deviate from the plan and it costs me money... well let's just say I was not happy.

The plan and the ADX were right.

The trader in charge (me) was wrong.

Trade the Plan.

(click on chart for better view)