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Sinking Oil Tankers
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Sinking Oil Tankers

by The MoleJune 13, 2019

Merely one month after the U.S. accused Iran of attacking several oil tankers in the Strait of Hormuz two more tankers have now been attacked by torpedos in the Sea Of Oman (which happens to be nearby) by hitherto unknown aggressors. One of the tankers has already sunk but fortunately the crew of both ships had already been safely evacuated. An investigation is under way and thus far officials have been cautious to point any fingers at Iran, which however seems almost guaranteed to be implicated if recent history is any guide.

 

Now we are always told that the price of crude oil is extremely sensitive to geopolitical events. And having taken out a long position in crude a few days ago it’s the reason why I had a big smile on my face upon hearing this morning’s news about the attack.

Not that I like to see sinking ships (except perhaps in a good game of Battleship) but the anticipation of large ill-gotten gains had of course entered the Scrooge McDuck regions of my mind. After all news reports quoted crude prices having shot up to above $62 a barrel!

My enthusiasm was quickly curbed however after checking my open positions in the CL futures. Which of course are traded on the NYMEX – a division of the CME – and thus represent futures contracts against WTI crude oil. Meaning they are a less affected by events surrounding Brent oil, which is internationally traded on the ICE.

The Brent futures were indeed pushing into $62 but had been trading at $64 just a few days earlier. Effectively the current jump higher isn’t even pushing outside the average daily range observed over the past few weeks.

Crude Contract Confusion

So let’s shine some light on the two most popular contracts, Brent North Sea Crude and West Texas Intermediate.

Brent is the pricing benchmark for Iranian crude and refers to oil produced in Africa, Europe, and the Middle East, which effectively represents two thirds of the world’s crude oil production. Brent is in the industry referred to as ‘sweet’ crude as it has a sulfur content of 0.37%.

West Texas Intermediate (WTI) is the benchmark crude for North America. It’s actually sweeter than Brent with a sulfur content of around 0.24%. As a side note, any crude with a sulfur content below 5% is referred to as ‘sweet’ crude. WTI is a better grade for the production of gasoline while Brent oil is favored for the production of diesel fuels.

Which also explains why the whole of Europe (which is mainly served by Brent oil) jumped onto the Diesel bandwagon about 20 years ago, a decision it now regrets after increasing concerns of pollution and long term health risks. For example in Germany diesel vehicles are being phases out aggressively after being heavily subsidized just a few years earlier.

To be honest, any five year old could have predicted this after simply standing behind a running diesel truck for more than 20 seconds, but knuckle-head decisions like these are representative of the blessing the European Union has inflicted on the continent.

Trading Crude

Most of us in the U.S. instinctively refer to the CL contract when trading crude, which isn’t surprising given as it serves as the global benchmark for crude oil:

The CME quotes an average daily volume of 1.30 million in May 2019 and open invest of 2.12 million contracts. I had a rougher time finding stats on the ICE (which is royal mess) but the numbers I dug up seemed to average around 360,000 contracts daily with 348,000 in open interest.

Of course the two contracts do affect each other to some extend and it’s no surprise to see a jump in WTI along with a jump in Brent. It’s the perception of value and risk that affects futures pricing, not merely production cost or supply and demand.

Trade What You See, Not What You Hear

Be this as it may, the two contracts continue to be a rich source of confusion for clickbait happy journalists eager to collect eyeballs by quoting wild price swings and to latch onto geopolitical events. As traders we have to be extremely careful to not let hysterical news reporting affect our trading, especially on a big bad contract like crude.

For what it’s worth, I decided to roll my July contract into August as nothing really has changes technically speaking and since world events may serve to provide a bit of backwind into the summer.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • ridingwaves

    if you were short crude, news matters today….Venezuela oil is dirty oil thus their dilemma…..

  • Ronebadger

    I never liked diesel…too smelly, noisy, and polluting.

  • Mark Shinnick

    Been a idra believer this month.

  • ridingwaves

    that stock with baker bros still at 19% ownership has a much bigger move coming but when is the issue…my little Alzheimer play is continuing to build a a beautiful chart…both just one news release from blast off….biotech is being beat up by election posturing….cheap here but under radar…

  • HD

    I actually instinctively refer to the CL contract as the widow maker! WATCH your six <55

  • https://evilspeculator.com Sir Mole III

    I fucking hate it. It’s everywhere here in Europe. When I was still riding a moto here in Valencia diesel cars were the bane of my existence – I couldn’t stand the fumes at the traffic lights. Now I take an electric scooter which is allowed on bicycle lanes of which we have a ton over here. No more diesel fumes – well, almost…

  • http://iberianviews.blogspot.com/ catracho

    new, well maintained diesel cars, built to the latest standards have similar emissions to new petrol vehicles.

  • Ronebadger

    I know…but…there are millions of 20 year old trucks out there.

  • http://iberianviews.blogspot.com/ catracho

    yes – that’s true. Here in the UK about 20 /25 years ago they incentivised people changing to diesel, demonsing petrol as less economical (tax, etc).. NOW the tables are turned – more tax on diesels, – convenient ! Now people are forced into buying new cars, or paying more tax on diesel cars.. merry-go-round

  • ridingwaves

    these crude beat downs are ruining the Fed’s inflation meme….they need them some higher priced gas…..

  • https://evilspeculator.com Sir Mole III

    In Germany even newer cars have lost tremendous value over the last year since the new regulations were announced. It’s a fucking shell game and consumers are bearing the brunt of it.

  • ridingwaves

    Its a catch 22 situation, car dealers are huge small business employers and average wages are higher than most verticals….its the reason the US govt started the whole great recession comeback via auto sector, rescuing GMAC, Chrysler, GM prevented a ripple effect that would have played out great depression……the auto vertical is huge……

  • HD

    anybody else getting the summer doldrums vibe?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Mole is spot on. A few tankers lost, tragic as that may be (life and environment) is NOTHING.
    do you realize how many ships are on the Ocean?

    Behold:
    https://www.shipmap.org/

    play with the filter on the upper right of the menu.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Mark Shinnick

    Ohhh…that torque baby….nothing like it for the price.

  • Mark Shinnick

    Yes…was feeling that love this morning myself, funny then you mention it.

  • http://www.captainboom.com/ captainboom

    Why she has to mark up a hot body with a bunch of ink is beyond me. Call me old I guess…

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://www.captainboom.com/ captainboom

    No time to read the whole thing, but looks interesting. I thought deeply about getting a tattoo while in the Navy. The thing that prevented it was a.) I’d seen old tattoos, and b.) I knew that my tastes would change as I aged. Don’t have any now, and don’t plan to ever get one.

    Most of the folks I see with lots of tattoos would be better off spending the money on dental work.

  • nirav777

    Tankers had no oil in them is what im hearing.. (lol)

  • Mark Shinnick

    Insurance scam “selling” into a depressed tanker market.

  • Mark Shinnick
  • BobbyLow

    I towed an 11,000 Pound fully loaded 36 Foot 5th Wheel Trailer all over the country with my Ford F350 7.3 L Diesel. That thing was a hard worker and was great towing over mountains and also 100 plus degree desert. I could almost hear that engine laughing and saying is that all you got? Seriously that was one towing machine. 🙂

  • BobbyLow

    Yes. This is the second day in a row with shitty price action. Trying to get any sustainable intra day swings have been impossible for me. I wish I was better at range trading but I’m not ready to go through yet another learning curve.

  • Mark Shinnick

    Roundup for Breakfast: Weed Killer Found in All Kids’ Cereals Sampled
    https://www.ewg.org/release/roundup-breakfast-part-2-new-tests-weed-killer-found-all-kids-cereals-sampled

  • Darrell Osgood

    I try to speak only when I know something, which means I don’t talk much around here. Regarding the attacks on the two tankers in the Gulf of Oman, I can quash two rumors right off. Those were torpedoes, not mines. Mines explode at the bow, torpedoes explode in the middle. Second, those were not Russian (or other militarily advanced country) torpedoes; they were shot by a smaller country with older, conventional torpedoes. Russians use a small nuclear warhead that explodes beneath the ship, creates a cavity, and the cavity breaks the ship. If the Russians hit your ship, you are going down fast. If anyone claims those ships were damaged by anything other than torpedoes, they are wrong.

  • Ronebadger

    Interesting….I don’t know whether to click LIKE on this or not…

  • HD

    Larry cocaine Kudlow is schedule to open his yapper later today! $ES_F

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    beats running them ashore and cutting them up for scrap.
    😉

    https://www.youtube.com/watch?v=5kDbwE7mFck

  • Ronebadger

    I don’t get it…why would they run aground like that…foot stuck on the gas pedal?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    The laboratory (established 1943), only took 10 samples.
    TEN? out of the whole US nation? (can I call Bullshit on this?)

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    are you trolling me? like I said, they cut them up for scrap metal.
    It’s cheaper to remelt metal, than dig it out of the ground bro!

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • HD

    Interesting. Maybe I’ve seen to many movies but I would suspect Russia has the ability to make it look like lesser technology. Idk.

  • BKXtoZERO

    long TVIX day only against ES spike 2895.6, tvix 21.12

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Cui bono?
    Who benefits?
    The possibilities are limitless.
    😉

    https://www.wired.com/2014/08/navy-seal-submarine/

  • Mark Shinnick

    Since these are commodity products, geography may not matter.

  • zzezzezz

    Hi folks, please give me your thoughts on this:
    I have been experimenting with the “Vortex Indicator” (VTI). I have “back-tested” it against SPX just for 1 year. Rules are simple:
    1) When the red line crosses up over the green line (or green crosses below red) = SELL
    2) When the green line crosses up over the red line (or red crosses below green) = BUY

    I count only 2 times that the signal to buy or sell was wrong. Here’s my attempt at illustrating this:

    https://uploads.disquscdn.com/images/99cb436e75b75e42cbf0aa242640f7f79af0fd72f9f6d4376320f03b73813706.jpg

    References:
    * https://en.wikipedia.org/wiki/Vortex_indicator
    * https://www.investopedia.com/terms/v/vortex-indicator-vi.asp

  • BKXtoZERO

    Hard to tell on my phone….but I will look tonight. Thanks for sharing!

  • Cyd

    I like it What you can do is tweak the 14 day look back to whatever parameter is more suitable to stock or index.
    Cyd

  • Mark Shinnick

    Many tools have potential; its how they are then managed that makes them workable.

  • BobbyLow

    Maybe I can play “Devil’s Advocate” here and say that it looks like a total of 12 Signals and if this is correct, it’s a pretty small sample size. Another thing is that whenever I’ve tested anything on a daily the results have always been great. But I found that it was awfully tough to hold positions through all the slip and slop that happens over this long a period of time.

    However, I’m not saying it won’t work, I just wonder if there’s a way of testing it out on a faster chart to be able to get more data.

  • ridingwaves

    I did it for you….

  • Cyd

    SLV yesterday pulled back and didn’t close above 5 ema but held 21 ema. Today a nice ramp so now long SLV .Also yesterday I was watching SPX at close and wanted a close below 2875 as price action was not conducive to hold short overnight as pointed out so closed short (SH).going into close. Now just watching the action SPX up this a.m and holding 5 ema
    Cyd

  • Mark Shinnick

    Yes, the lure of daily signalling gets smashed by the realities of the intraday process needed to make it most workable.

  • Darkthirty

    Jupiter / Neptune

  • ridingwaves

    depends on trader or investor mentality….interday signals are for day traders….not so much for investors…

  • Cyd

    @ZZEZ You may want to compare VTX with ADX ADX to avoid a whipsaw use the extreme point rule

    Extreme point rule take the high or low of the day it crosses. Next day close above the high of the positive crossover signals a long.Vice versa on a negative crossover closing below the day of the crossover for an exit or short
    Cyd

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    silver needs to prove itself to me. if weeks from now it’s at 15. You’ll will be rewarded.
    till then, Homey don’t play that.

    https://uploads.disquscdn.com/images/3921c74e243041f56cc28ba81975ffae6a6cb0a52c439d73840a6f322e0686d1.png

  • Mark Shinnick
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    a lot of good things said by BL.
    sample size is very low. I just wanted to add, notice the overall chart.
    A high swing sideways Market.
    It would be a bad thing if this only works in a sideways market, and not a down or up Market.
    -GG

  • Cyd

    Another note it looks great for a position trade.Appears to catch the trend nicely for someone who does not swing or day trade and wants to hold longer term
    Cyd

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    tell me about it. I got out of bed – “oh my Uranus!”

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    The Butterfly Effect with Cheerios. One bounce to the left, Seattle, one bounce to the right, NewJersey grocery store.

  • HD

    Nice work amigo. I would echo BL comments about it being a daily chart. Still, if your lens sees and edge then it’s an edge.

  • Mark Shinnick

    A friggin’ rocky horror.

  • Cyd

    The volume on the confirmed uptrend end of December last year showed conviction and confirmed the new uptrend. This uptrend now in progress with price action and volume bears watching closely
    Cyd

  • Ronebadger

    Except for the first 1/2 hour, SPY volume is WAY LOW

  • Ronebadger

    I’m going with “Volume precedes price”

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    TLT isn’t exactly, rolling over and playing dead. competition for equities.

    https://stockcharts.com/h-sc/ui?s=TLT&p=D&yr=1&mn=0&dy=0&id=p10852663213

  • Darkthirty

    TMI..Who you sleeping with?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    thanks BK.
    VUSTX concurs, it’s a day behind. popular in 401K’s.

    https://stockcharts.com/h-sc/ui?s=VUSTX&p=D&yr=1&mn=0&dy=0&id=p13881543452

  • BKXtoZERO

    I was looking at TBT and didn’t like it.

  • Darkthirty

    When you have low spots in a drilled field of small grain, e.g. wheat, oats, barley, the field won’t dry down at the same time. If you combine wet, unripe grain, it’ll turn into mush and plug the combine and destroy the grain. If you wait too long to harvest, the whole field will lay down and be a total loss. Chemical killing the wet spots has been practice for a long time. Not sure why this is news now..

  • Mark Shinnick
  • Darkthirty

    I ran it through 1-5-30 minute timeframes. Works until the machines kick in, then it’s worthless. I’ll play with it some more though. Looks kinda like AROON

  • Scott_CA

    What……?? Roundup would kill oats!! Farmers are using this as a ‘pre-harvest drying agent’. When/where I grew up all we had to do was wait for the sun to dry the oats in August, just before school started in the fall. This is for convenience–it isn’t necessary. This strikes me as misusing a chemical, whether or not it is carcinogenic. And using it on ‘organic’ crops?? It might work the same way on cannabis, but no one would do that, right?

  • Cyd

    Another thing with VTX . If it gives a buy or sell signal SPX then see if it gives a buy or sell signal on the NAZ or DOW. If all three give a buy or sell signal then go for it
    Cyd

  • Cyd

    Yes Me too
    Cyd

  • Darkthirty

    You don’t remember paraquat? all the vipers were worried about it….

  • Cyd

    SLV stop 13.80 closing .Target 14.30 .SPY volume with the small spinning top candles today and yesterday looks like distribution strong hands selling to weak hands
    Cyd

  • Cyd

    Shorting the weak bank WFC
    Cyd

  • http://iberianviews.blogspot.com/ catracho

    what a range bound market the last few days..
    working up for a move?

  • ridingwaves

    fed decision next week. I is selfish word but I think there is no reason to lower….a swift down move it would create….market needs to grind lower to draw fed eyeballs away from other fires…..

  • mSquare

    Riskier (than peers) with pending news. Most of the miserable news likely already priced in the stock at few % off the double bottom in $43-$44s

    When (or if!) they announce their CEO find, it could gap up – even a half decent CEO is better than none for so long. Also news/rumor of Buffet adding to his stake or say something positive etc…

  • Cyd

    Short term trade target 44.24
    Cyd

  • BKXtoZERO

    I closed half tvix from today at close. + 0.25 cents

  • Darkthirty

    Full moon Monday at 3:31AM

  • mSquare

    WFC just a 2% lower not worth the risk (due to sword of good news hanging above and a sudden gap-up).

    Would rather short C on a bounce or even less risky XLF / KRE

  • Cyd

    BKX banking index technically very weak WFC weakest bank just a trade
    Cyd

  • BKXtoZERO

    BKX to….0

  • Darkthirty
  • Cyd

    The bounce is occurring now
    Cyd

  • mSquare

    Yes, agree on that being one of weaker mega-banks but that is exactly why not to choose it to short it this low.

    If fact, a good candidate to buy here or in $44s and sell calls on it or simply short $43-$44 Puts to earn a few $s till even half good news sends it up (or it slowly goes up with markets).

    But to each their style…

  • https://evilspeculator.com Sir Mole III

    Great stuff – thanks for sharing!

  • https://evilspeculator.com Sir Mole III

    That was very cool – thanks for sharing.

  • Darkthirty

    False flag maybe……….

  • Scott_CA

    I didn’t do much with herbicide analysis–mostly insecticides and fumigants. Our lab ran them, but not in my group, and what we did do were water samples.

  • Darkthirty

    Did some farming in the 80s, never cared for the lax attitude about the chemicals. About the same time, the feds were spraying reefer with paraquat for “The War Against Drugs”. It was hard to tell if dope you were smoking was sprayed or just not cured properly…

  • Scott_CA

    I guess where I grew up in Northern Iowa it was too flat, tiled, or the weather was different. I don’t ever remember wet spots in oats at harvest. And, of course, Roundup didn’t exist.

  • Scott_CA

    If this is not an optical illusion, that guy was LOW!! I’m impressed, nearly caressing the crop with the wheels.

  • Darkthirty

    Lasso was for monocots. If I disremember correctly oats came in about august, warm and dry. It’d be more of a problem in a million acre field …