Commercial short sales in the crude oil market

The United States dominates the country's oil production. Crude oil reserves in the US have just reached a 26-year high. Hell, just last year, North Dakota passed the production of Ecuador and Ecuador is a member of OPEC. In addition, the United States is expected to take over the crown as Saudi Arabia's largest oil producer as early as 2020. The issues that continue to arise are twofold. "Why the price of oil has not fallen and why gas prices are still so high." The answer is simple, politics and logistics.

40 years ago the Energy Policy and Conservation Act came into force. The idea was, for the most part, to ban the export of crude oil, thus moving away from the production of an OPEC source and to a predominantly Texas-based production during the 1970s oil crisis and embargo. OPEC. Although the intention was noble at the time, it is clear that the global landscape of energy production has shifted. We are fast approaching the point of energy independence. Our production already overshadows imports on a weekly basis on a regular basis. In fact, manufacturing growth here in the US has helped offset the decline in world production in each of the last three years.

This is where the door to the Energy Policy and Conservation Act comes into play. While crude oil itself cannot be exported, refined petroleum products can. Therefore, oil refining companies have had access to both the domestic and global markets over the last 40 years, while actual drill rigs have been handcuffed with outdated policies. Captive oil drilling has seen the value of US crude oil decline compared to the global market as domestic supplies increase. Refiners have used the overused internal situation to their advantage. They buy local cheap oil and resell refined petroleum products at elevated prices on the global market. Result for the refining industry.

Ironically, a change in outdated legislation may not even be necessary to equalize prices. Primary glut is limited to the Midwest. Canadian oil enters the Keystone pipeline, along with North Dakota and Montana. It all ends in Cushing, Oklahoma. The expansion of the pipeline will deliver this light sweet crude oil to more refineries, balancing the difference between east and west coasts against gas prices in the Midwest. Pipelines such as the Gulf Coast gas pipeline project, Houston side project and apparently the Keystone expansion could double the Gulf Coast refining capacity and help bring West Texas Intermediate (WTI) prices back in line with the global crude Brent benchmark.

The alarmists used the previous example to illustrate that gas prices will rise "throughout the American heartland." However, it is very easy to see the population shifting from the American heart to the coast. The lifting of the export ban would certainly lower the price of the Brent crude brand, which would be a huge benefit to coastal refiners who are already importing and improving the heavier Brent crude brands as well as their general population. The simple answer is that it would create a more efficient global market and an efficient market lower prices for all involved. This way the refineries will be the strongest voice of protest.

The internal biases in the domestic crude oil market, which have been exacerbated by the boom of the fracking industry, create a peculiar set of commercial biases. Fear of the crude oil market is always measured by surprising price spikes. This can be measured by locking down the buyers of the refineries at future delivery. Merchants were huge buyers for the 2007-2008 rally and were also the biggest top sellers. It is therefore reasonable to note that their current situation is at least bullish since August 2005. We have been using this bias to trade the short side of the WTI discounted contract for years. You can see our typical setup of the WTI crude sales chart here.