There is a constant trade-off between the impact of macroeconomic views and short-term logistics in the oil market. Traders will often place positions based on the oil fundamentals only to be hurt when there is a switch to macroeconomic such as the risk-off view of the last week. Greek elections drive the oil market one week and the pattern of supply will drive it the next week.
Last month the Saudis have announced that they have contracted for 11VLCC tankers to take 22 mmb of oil to the US in an effort to show that they want to stabilize the price of oil. The reaction in the market was a swift decline in price. The decline in price is also suggestive of the importance of oil logistics. The moving of oil from one location to another will have a significant effect on price in the short-run. 22 mmb is just a small amount of oil but it can flood a location and cause a price difference.
Success in commodity trading is based on understanding how to make this trade-of between the macroeconomic and microeconomic effects of markets. The macro risks need to be managed for the downside and the micro fundamentals need to be focus of profit generation.
Last month the Saudis have announced that they have contracted for 11VLCC tankers to take 22 mmb of oil to the US in an effort to show that they want to stabilize the price of oil. The reaction in the market was a swift decline in price. The decline in price is also suggestive of the importance of oil logistics. The moving of oil from one location to another will have a significant effect on price in the short-run. 22 mmb is just a small amount of oil but it can flood a location and cause a price difference.
Success in commodity trading is based on understanding how to make this trade-of between the macroeconomic and microeconomic effects of markets. The macro risks need to be managed for the downside and the micro fundamentals need to be focus of profit generation.
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