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Trading Oil & Energy related Derivatives Troy Lavin 16 th  January 2008 Shillingstone Ltd.
Quick Introduction <ul><li>Broker for Man Financial </li></ul><ul><li>Trader for Glencore </li></ul><ul><li>Now trading my...
Going to cover… <ul><li>Background to Crude Oil </li></ul><ul><li>The Futures Market </li></ul><ul><li>How I trade </li></...
Why Trade Oil? <ul><li>It’s interesting: </li></ul><ul><ul><li>Most important commodity in the world </li></ul></ul><ul><u...
When Oil got Interesting <ul><li>OPEC formed in 1960 </li></ul><ul><li>Oil shocks 1973 & 1979 </li></ul><ul><li>World rece...
Types of Oil <ul><li>Oil quality varies by deposit </li></ul><ul><li>Ease of refinement - light/heavy, sweet/sour </li></u...
The Futures Market <ul><li>Spot vs. Futures </li></ul><ul><li>Futures market began in 1983 in US (1988 in UK) </li></ul><u...
Backwardation vs Contango Shillingstone Ltd.
Market Participants <ul><li>Friends </li></ul><ul><ul><li>Producers </li></ul></ul><ul><ul><li>Consumers </li></ul></ul><u...
Shillingstone Ltd.
New Game - Perfect Storm! <ul><li>Security of supply drove prices </li></ul><ul><li>Demand now driving prices - China/Indi...
An Average Day <ul><li>08.30 - Singapore Pricing </li></ul><ul><li>09.30 - London opening </li></ul><ul><li>11.00 - East C...
Wednesday – Stats Day <ul><li>US Energy Statistics – 15:30 </li></ul><ul><li>DOE Vs API </li></ul><ul><li>Petroleum Admini...
Shillingstone Ltd.
An Average Year <ul><li>Q1 - Fund activity - winter in the West prepare for US driving season </li></ul><ul><li>Q2 - Marke...
How I trade <ul><li>Full Time Trader </li></ul><ul><li>Look for patterns, trends, anomalies </li></ul><ul><li>Not afraid t...
Two Schools of Thought <ul><li>Fundamentals </li></ul><ul><ul><li>Economics </li></ul></ul><ul><ul><li>Supply/demand </li>...
Technical Thoughts <ul><li>KISS - Keep it Simple, Stupid </li></ul><ul><li>Moving Averages - 5/20, 8/34, 100/200 </li></ul...
Shillingstone Ltd.
Shillingstone Ltd.
Shillingstone Ltd.
Shillingstone Ltd.
Shillingstone Ltd.
Basic Trading Rules <ul><li>Protect your war chest - 2% rule, Keynes  </li></ul><ul><li>Trend is your friend </li></ul><ul...
Outlook 2008 <ul><li>$100 was a target - OPEC’s thoughts </li></ul><ul><li>China/India not going away but commodities may ...
Supply Issues <ul><li>Peak oil production? </li></ul><ul><li>Iraq - US pull out…civil war? </li></ul><ul><li>Iran - nuclea...
Demand Issues <ul><li>US Recession </li></ul><ul><li>Credit Crunch - Worldwide Effects </li></ul><ul><li>US Dollar Directi...
Oil Trading Resources <ul><li>Websites: EIA, API, WTRG, Reuters, Bloomberg, Dow Jones, TWC </li></ul><ul><li>Books: Tradin...
Questions & Answers Shillingstone Ltd.
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  1. 1. Trading Oil & Energy related Derivatives Troy Lavin 16 th January 2008 Shillingstone Ltd.
  2. 2. Quick Introduction <ul><li>Broker for Man Financial </li></ul><ul><li>Trader for Glencore </li></ul><ul><li>Now trading my own fund </li></ul>Shillingstone Ltd.
  3. 3. Going to cover… <ul><li>Background to Crude Oil </li></ul><ul><li>The Futures Market </li></ul><ul><li>How I trade </li></ul><ul><li>Outlook 2008 </li></ul>Shillingstone Ltd.
  4. 4. Why Trade Oil? <ul><li>It’s interesting: </li></ul><ul><ul><li>Most important commodity in the world </li></ul></ul><ul><ul><li>Most political commodity </li></ul></ul><ul><li>It’s transparent, liquid, highly leveraged </li></ul><ul><li>Many trading opportunities </li></ul>Shillingstone Ltd.
  5. 5. When Oil got Interesting <ul><li>OPEC formed in 1960 </li></ul><ul><li>Oil shocks 1973 & 1979 </li></ul><ul><li>World recession, fuel efficiency, insulation, exploration, alternative fuel sources, International Energy Agency (IEA), SPR </li></ul>Shillingstone Ltd.
  6. 6. Types of Oil <ul><li>Oil quality varies by deposit </li></ul><ul><li>Ease of refinement - light/heavy, sweet/sour </li></ul><ul><li>Benchmark crudes - WTI, Brent, Dubai </li></ul><ul><li>Product derivatives - Gasoline, Heating oil, Gas Oil, Jet fuel </li></ul>Shillingstone Ltd.
  7. 7. The Futures Market <ul><li>Spot vs. Futures </li></ul><ul><li>Futures market began in 1983 in US (1988 in UK) </li></ul><ul><li>Most liquid and transparent way to trade oil </li></ul><ul><li>Desert Storm - Aug. 1990 to Jan. 1991: Birth of the modern oil market </li></ul><ul><li>Backwardation and contango </li></ul>Shillingstone Ltd.
  8. 8. Backwardation vs Contango Shillingstone Ltd.
  9. 9. Market Participants <ul><li>Friends </li></ul><ul><ul><li>Producers </li></ul></ul><ul><ul><li>Consumers </li></ul></ul><ul><ul><li>Refiners </li></ul></ul><ul><li>Enemies </li></ul><ul><ul><li>Institutions </li></ul></ul><ul><ul><li>Funds </li></ul></ul><ul><ul><li>Locals </li></ul></ul><ul><ul><li>Private Traders </li></ul></ul>Shillingstone Ltd.
  10. 10. Shillingstone Ltd.
  11. 11. New Game - Perfect Storm! <ul><li>Security of supply drove prices </li></ul><ul><li>Demand now driving prices - China/India </li></ul><ul><li>Era of cheap money </li></ul><ul><li>Fund effect has been felt everywhere </li></ul><ul><li>US Dollar Depreciation </li></ul>Shillingstone Ltd.
  12. 12. An Average Day <ul><li>08.30 - Singapore Pricing </li></ul><ul><li>09.30 - London opening </li></ul><ul><li>11.00 - East Coast US waking up </li></ul><ul><li>14.00 - NYMEX officially opens </li></ul><ul><li>16.30 - London pricing </li></ul><ul><li>19.30 - NYMEX/ICE settlements </li></ul>Shillingstone Ltd.
  13. 13. Wednesday – Stats Day <ul><li>US Energy Statistics – 15:30 </li></ul><ul><li>DOE Vs API </li></ul><ul><li>Petroleum Administration for Defence Districts (PADD) …… 5 PADDs </li></ul><ul><li>PADD 3 – Major Import and Refining Region </li></ul><ul><li>Crude PADD 2 (Mid West) </li></ul><ul><li>Heat PADD 1 (East Coast) </li></ul><ul><li>Gasoline PADDs 1&5 (West Coast) </li></ul>Shillingstone Ltd.
  14. 14. Shillingstone Ltd.
  15. 15. An Average Year <ul><li>Q1 - Fund activity - winter in the West prepare for US driving season </li></ul><ul><li>Q2 - Market tops Apr-May </li></ul><ul><li>Q3 - Hurricane season - end of US driving season </li></ul><ul><li>Q4 - Profit taking - prepare for cold weather and New Year </li></ul>Shillingstone Ltd.
  16. 16. How I trade <ul><li>Full Time Trader </li></ul><ul><li>Look for patterns, trends, anomalies </li></ul><ul><li>Not afraid to book profits, cut losses </li></ul><ul><li>Trade short term on flat price </li></ul><ul><li>Trade longer term on spreads, arbs, etc </li></ul><ul><li>Fund activity - turn of each quarter </li></ul><ul><li>GSCI - day 5 to 9 each month </li></ul>Shillingstone Ltd.
  17. 17. Two Schools of Thought <ul><li>Fundamentals </li></ul><ul><ul><li>Economics </li></ul></ul><ul><ul><li>Supply/demand </li></ul></ul><ul><ul><li>Geopolitics </li></ul></ul><ul><li>Technicals </li></ul><ul><ul><li>Sophisticated charting </li></ul></ul><ul><ul><li>Black box funds </li></ul></ul><ul><ul><li>Historical data </li></ul></ul>Shillingstone Ltd.
  18. 18. Technical Thoughts <ul><li>KISS - Keep it Simple, Stupid </li></ul><ul><li>Moving Averages - 5/20, 8/34, 100/200 </li></ul><ul><li>Trends - lines and channels </li></ul><ul><li>Relative strength - RSI and Stochastic </li></ul><ul><li>Japanese Candlesticks - visually effective </li></ul><ul><li>No silver bullet </li></ul>Shillingstone Ltd.
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  23. 23. Shillingstone Ltd.
  24. 24. Basic Trading Rules <ul><li>Protect your war chest - 2% rule, Keynes </li></ul><ul><li>Trend is your friend </li></ul><ul><li>Avoid the more-on trade </li></ul><ul><li>Discipline - cut losses, stick to a winning formula </li></ul><ul><li>Patience - trades need time and room </li></ul><ul><li>Keep your emotions in check </li></ul><ul><li>Take a break… </li></ul>Shillingstone Ltd.
  25. 25. Outlook 2008 <ul><li>$100 was a target - OPEC’s thoughts </li></ul><ul><li>China/India not going away but commodities may have got carried away </li></ul><ul><li>US elections - economy and $ effect </li></ul><ul><li>Nigeria </li></ul>Shillingstone Ltd.
  26. 26. Supply Issues <ul><li>Peak oil production? </li></ul><ul><li>Iraq - US pull out…civil war? </li></ul><ul><li>Iran - nuclear ambitions? </li></ul><ul><li>Saudi Arabia - Al Qaeda </li></ul>Shillingstone Ltd.
  27. 27. Demand Issues <ul><li>US Recession </li></ul><ul><li>Credit Crunch - Worldwide Effects </li></ul><ul><li>US Dollar Direction </li></ul><ul><li>Fuel Efficiency, Green Issues, Nuclear </li></ul>Shillingstone Ltd.
  28. 28. Oil Trading Resources <ul><li>Websites: EIA, API, WTRG, Reuters, Bloomberg, Dow Jones, TWC </li></ul><ul><li>Books: Trading for a Living, Market Wizards </li></ul><ul><li>Daily: Platts, PIRA, Gartman Letter </li></ul>Shillingstone Ltd.
  29. 29. Questions & Answers Shillingstone Ltd.
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