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Delta Index16th January 2008 Shillingstone Ltd.
Trading Oil & Energy related DerivativesTroy Lavin
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Delta IndexShillingstone Ltd.
Quick Introduction
Broker for Man Financial
Trader for Glencore
Now trading my own fund
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Going to cover…
Background to Crude Oil
The Futures Market
How I trade
Outlook 2008
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Delta IndexShillingstone Ltd.
Why Trade Oil?
It’s interesting:Most important commodity in the worldMost political commodity
It’s transparent, liquid, highly leveraged
Many trading opportunities
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When Oil got Interesting
OPEC formed in 1960
Oil shocks 1973 & 1979
World recession, fuel efficiency, insulation, exploration, alternative fuel sources, International Energy Agency (IEA), SPR
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Types of Oil
Oil quality varies by deposit Ease of refinement - light/heavy,
sweet/sour Benchmark crudes - WTI, Brent, Dubai Product derivatives - Gasoline, Heating oil,
Gas Oil, Jet fuel
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The Futures Market
Spot vs. Futures Futures market began in 1983 in US (1988 in
UK) Most liquid and transparent way to trade oil Desert Storm - Aug. 1990 to Jan. 1991: Birth of
the modern oil market Backwardation and contango
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Backwardation vs Contango
Jan 2007 - Contango
48.00
50.00
52.00
54.00
56.00
58.00
60.00
FEBM
ARAPR
MAY
JUN
JULAUG
SEPOCT
NOVDEC
JAN
FEBM
ARAPR
Current Oil Market - Backwardated
88.0089.0090.0091.0092.0093.0094.0095.0096.0097.00
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Market Participants
Friends Producers Consumers Refiners
Enemies Institutions Funds Locals Private Traders
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New Game - Perfect Storm!
Security of supply drove prices Demand now driving prices - China/India Era of cheap money Fund effect has been felt everywhere US Dollar Depreciation
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An Average Day
08.30 - Singapore Pricing 09.30 - London opening 11.00 - East Coast US waking up 14.00 - NYMEX officially opens 16.30 - London pricing 19.30 - NYMEX/ICE settlements
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Wednesday – Stats Day
US Energy Statistics – 15:30 DOE Vs API Petroleum Administration for Defence Districts
(PADD) …… 5 PADDs PADD 3 – Major Import and Refining Region Crude PADD 2 (Mid West) Heat PADD 1 (East Coast) Gasoline PADDs 1&5 (West Coast)
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An Average Year
Q1 - Fund activity - winter in the West prepare for US driving season
Q2 - Market tops Apr-May Q3 - Hurricane season - end of US driving
season Q4 - Profit taking - prepare for cold
weather and New Year
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How I trade
Full Time Trader Look for patterns, trends, anomalies Not afraid to book profits, cut losses Trade short term on flat price Trade longer term on spreads, arbs, etc Fund activity - turn of each quarter GSCI - day 5 to 9 each month
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Two Schools of Thought
Fundamentals Economics Supply/demand Geopolitics
Technicals Sophisticated charting Black box funds Historical data
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Technical Thoughts
KISS - Keep it Simple, Stupid Moving Averages - 5/20, 8/34, 100/200 Trends - lines and channels Relative strength - RSI and Stochastic Japanese Candlesticks - visually effective No silver bullet
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Delta IndexShillingstone Ltd.
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Delta IndexShillingstone Ltd.
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Delta IndexShillingstone Ltd.
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Basic Trading Rules
Protect your war chest - 2% rule, Keynes Trend is your friend Avoid the more-on trade Discipline - cut losses, stick to a winning formula Patience - trades need time and room Keep your emotions in check Take a break…
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Outlook 2008
$100 was a target - OPEC’s thoughts China/India not going away but
commodities may have got carried away US elections - economy and $ effect Nigeria
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Supply Issues
Peak oil production? Iraq - US pull out…civil war? Iran - nuclear ambitions? Saudi Arabia - Al Qaeda
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Demand Issues
US Recession Credit Crunch - Worldwide Effects US Dollar Direction Fuel Efficiency, Green Issues, Nuclear
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Oil Trading Resources
Websites: EIA, API, WTRG, Reuters, Bloomberg, Dow Jones, TWC
Books: Trading for a Living, Market Wizards
Daily: Platts, PIRA, Gartman Letter
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Questions & Answers