Bank the cash
Opec can make or break whole economies. But its news is also a big deal for part-time day traders
Trading, as I see it, is about spotting an opportunity. But for me with oil, there's a fixed schedule of weekly events to choose from. My key plays are the Wednesday Energy Information Administration (EIA) reports offering data on US supply, the monthly market reports from Opec and the International Energy Agency and, of course, big supplier meetings—an Opec powwow or a Saudi-Russia bilateral. That was one of my favorite trades yet, playing both long and short positions within the span of an hour or so, entirely driven by real-time news—much of it coming via the #OOTT hashtag Lisa Ward and I started on Twitter last April.
Trading Friday rig counts isn't what it used to be. The number released by Baker Hughes each week has much less immediate effect on the graph than it did a year ago—unless you keep the trade going after the weekend. The drops in the rig count in March last year had a lot more volatility to them because oil prices were so low. The American Petroleum Institute's (API) reports also don't generate the same volatility they used to. The Genscape reports on Mondays and Thursdays are also significant. I trust their accuracy as they track crude in a way I only wish I had the resources to.
One article pointed out that the best play (82% of the time) is between mid-February and mid-May. I wonder how it will work out this year because the crude oil imports section of the EIA reports last showed 2m more barrels a day coming into the US than at the same time last year.
Exports vs production
Opec's done a great job distracting us with its cuts to production—but members' inventories are still large, so they can keep exports high by maintaining high exports. Saudi Arabia drew 56m barrels of oil from storage last year, for example, and it could keep drawing down on its stocks for over 400 days if it wanted to replace the 0.5m b/d or so it is cutting as part of the supply deal. Production only means moving oil vertically from below ground to above. Exports are why the letter "e" is in Opec, the Organization of Petroleum Exporting Countries, not just producing countries. And exports are the source of the market's glut.
Some days I don't even pay attention to the news, and just trade the graph—a play on technical-support levels. It works well until something interrupts it, usually aggressively. Like, say, a breaking news alert issued by the good folks at Livesquawk. They're on the top of my instant-notification list on Twitter. (Yes, I use Twitter for just about everything nowadays.) Some trader—can't remember who—once called Livesquawk the "poor man's Bloomberg terminal". I don't know if "poor" is the right word, but I max out all the technical features made available from a service such as Twitter—to my benefit. For information I am missing, I do the research. I have a genuine interest in learning more about the topic as well as getting to know industry professionals and veterans who have firsthand knowledge. Trading is only a fraction of my interaction with oil.
Sometimes—even some weeks—the graph zigzags like a row of teeth. It's like watching paint dry. When I see that pattern, I either trade it accordingly or hop on the German stock exchange, the Dax index, which is a lot of fun. I don't trade large sums. I like to bring in large multiples instead. I'll begin the week with a principal investment of $70-130 and pick the sharpest tool in the shed: very high-leveraged turbo-warrants (in Sweden). On a bad day, I can lose much or all of it; on a good one, I net in four to five times the amount by switching long/short positions and banking the profits after each trade. I learned the hard way that you shouldn't double-down on the next trade. Better to revert to the principal investment after each trade.
Every trader has a system. Mine is to quickly move money from one account to another—from "casino" to "stash", as I call them. My record return from a $150 principal investment was $2,000 four days later. If my whole principal gets cleaned out—a bad day—then I cool off for about a week and lose myself tracking tankers or official government statistic publications. I learn so much from these numbers. I never let a bad trade get me down, but I do all I can to avoid repeating the mistake. The biggest one is not banking the profits. I only wish someone had told me that early on. Still, as the old saying goes: "What doesn't kill you, only makes you stronger." Too bloody right.
Samir Madani founded the pro bono website TankerTrackers.com with Lisa Ward (@Lisa_Ward1990) and Kishore Gunturu (@geauxgunturu). The fee for these columns is being donated to child-oriented charities.