Oil Price forcasting
The Oil futures are exactly that.  They are people forecasting the price of oil at a point of time in the future where they are willing to buy oil at that price. That said, Do you have evidence of a correlation of Price of oil to the shares of oil stocks?  Oil companies that are good investments are generally good investments regardless of the cost of oil.  If you did not know about oil futures then you might be best served by consulting an investment professional for some guidance. "In layman's terms, oil on the commodities market has a ""spot price"" and a ""future price"". The spot price is what the last guy paid to buy a barrel of oil right now (and thus a pretty good indicator of what you'll have to pay). The futures price is what the last guy paid for a ""futures contract"", where they agreed to buy a barrel of oil for $X at some point in the future. Futures contracts are a form of hedging; a futures contract is usually sold at a price somewhere between the current spot price and the true expected future spot price; the buyer saves money versus paying the spot price, while the seller still makes a profit. But, the buyer of a futures contract is basically betting that the spot price as of delivery will be higher, while the seller is betting it will be lower. Futures contracts are available for a wide variety of acceptable future dates, and form a curve when plotted on a graph that will trend in one direction or the other. Now, as Chad said, oil companies basically get their cut no matter what. Oil stocks are generally a good long-term bet. As far as the best short-term time to buy in to an oil stock, look for very short windows when the spot and near-future price of gasoline is trending downward but oil is still on the uptick. During those times, the oil companies are paying their existing (high) contracts for oil, but when the spot price is low it affects futures prices, which will affect the oil companies' margins. Day traders will see that, squawk ""the sky is falling"" and sell off, driving the price down temporarily. That's when you buy in. Pretty much the only other time an oil stock is a guaranteed win is when the entire market takes a swan dive and then bottoms out. Oil has such a built-in demand, for the foreseeable future, that regardless of how bad it gets you WILL make money on an oil stock. So, when the entire market's in a panic and everyone's heading for gold, T-debt etc, buy the major oil stocks across the spectrum. Even if one stock tanks, chances are really good that another company will see that and offer a buyout, jacking the bought company's stock (which you then sell and reinvest the cash into the buying company, which will have taken a hit on the news due to the huge drop in working capital). Of course, the one thing to watch for in the headlines is any news that renewables have become much more attractive than oil. You wait; in the next few decades some enterprising individual will invent a super-efficient solar cell that provides all the power a real, practical car will ever need, and that is simultaneously integrated into wind farms making oil/gas plants passe. When that happens oil will be a thing of the past." If past is prologue, I'd say $20, give or take, inflation adjusted of course. http://www.antagoniste.net/WP-Uploads/2007/01/oil_prices_1861_2006.jpg If supplies are at nightmare oversupply, say, as an absurd unlikely scenario, 82 year high in US oil supplies or an all time record in EIA weekly inventories, it looks like the oil price could be capped at the cost of oil sands:  This one's just plain scary.  Unless if there were some changes refinery laws or technology that I'm not aware of, refineries cutting 50% of the retail gasoline volumes looks bad:
"Sure, and I made it clear in my post that I'm willing to accept that I may be wrong.  But the author does a poor job of arguing his point, his argument in the article is based on an unsubstantiated claim that a certain activity is bad. He says it ""impairs price performance"" but offers no proof that this occurs.  Now granted, I haven't had a chance to look at the data either, but as myself and other posters have mentioned, this claim is quite debatable. I need a bit more material to be convinced." I am not hooked up to the US MSM, so i dont know if they have really said what the article claims it is saying. (or that way, or that much) But the whole article claims the idea there will be more oil is bullshit, and that the MSM is covering it ... poorly. No, and using a 37 year old formula in finance that is as simple as: should make it obvious technical analysis is more of a game for retail traders than investment advice. When it comes to currencies, there are a myriad of macroeconomic occurrences that do not follow a predictable timescale. Using indicators like RSI on any time frame will not magically illuminate broad human psychology and give you an edge. It is theoretically possible for a single public stock's price to be driven by a range of technical traders who all buy at RSI 30 and sell at RSI 70, after becoming a favorite stock on social media, but it is infinitely more likely for all market participants to have completely different goals. Gone are the days when in India, the fuel price was revised on every fortnight. Many times you would have filled up the tank one day before to save few bucks. Now, from 16th June 2017 onwards, Government has decided to revise the daily fuel price at 6 AM according to the international crude oil and dollar prices with respect to rupee value. The notion behind taking this step was just to remove the big leap in fuel rates and also a government initiative to maintain the demand and supply situation in equilibrium. I used to trade power for a closed end hedge fund.   Yes, weather derivatives are very important.  They help power traders / utilities hedge for unaccountable variables, IE weather.  For example, lets say it costs a utility $50 an hour to produce power for the load when it is 80 degrees outside.  Lets say I trade the contract with them to guarantee the weather will be under 80 degrees.  If the weather is higher than 80 degrees, more people turn in their AC, the load on the grid goes up, and the utility has to start generating power at $70 an hour.    Under this contract, I would be liable to pay the utility the net difference in their cost (the additional $20 per hour they generate per mw).  In that case I am a loser.  If the power comes in under 80 degrees, I make money as I priced (sold) the contract at a premium according to the risk I calulated for offereing the contract.  This has many many applications, but yes, its not a weird thing to trade.  Hope this helps. Summarized article: Recent mishaps causing supply disruptions at 14 California refineries caused wholesale gas prices to reach an all-time high of $4.39 per gallon.   Local gas stations increased prices to 30 cents or more per gallon overnight, with some stations charging as much as $5.79 per gallon.   Some stations chose not to buy high-priced wholesale gas for fear they wouldn't be able to sell it. While others shut off their pumps after they ran out of the gas they bought at lower wholesale prices.  Some of the refinery mishaps include an oil pipeline problem, a power outage at Exxon Mobil Corp's Torrance refinery and a shutdown of the crude distillation unit at Chevron Corp's Richmond refinery.   It is unknown when wholesale prices will come down but one solution may be to allow refineries to switch over from the summer blend to the cheaper winter blend earlier than planned.    The California Energy Commission is considering the idea but notes an early switch over could impact air quality. The summer blend reduces evaporation of pollutants during warm weather which would be less damaging to air quality in California's current heat wave.  * For more summarized news, subscribe to the [/r/SkimThat](http://www.reddit.com/r/SkimThat) subreddit "This is the best tl;dr I could make, [original](http://www.npr.org/2017/05/24/529852301/boom-time-again-for-u-s-oil-industry-thanks-to-opec) reduced by 79%. (I'm a bot) ***** &gt; Oil producers across the country are watching to see what OPEC does at its meeting in Vienna this week, since the cartel of oil-exporting countries has recently played a big role in turning around a two-year U.S. slump.  &gt; There are more than twice as many U.S. rigs drilling for oil as a year ago, a turnaround that&amp;#039;s felt keenly in places like the Bakken oil patch in North Dakota.  &gt; In the dizzying boom-bust cycle of the oil industry, things were crazy busy here a few years back, when a barrel of oil was around $100. But that led to a surge in production that flooded the market, pushing the price of oil down.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6ejcc3/boom_time_again_for_us_oil_industry_thanks_to_opec/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~133536 tl;drs so far."") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **Oil**^#1 **Dakota**^#2 **price**^#3 **U.S.**^#4 **Job**^#5" On international stock exchanges, they trade Puts and Calls, typically also for currencies. If for example 1 NOK is worth 1 $ now, and you buy Calls for 10000 NOK at 1.05 $ each, and in a year the NOK is worth 1.20 $ (which is what you predict), you can execute the Call, meaning 'buying' the 10000 NOK for the contracted 1.05 $ and selling them for the market price of 1.20 $, netting you 12000 - 10500 = 1500 $. Converting those back to NOK would give you 1250 NOK. Considering that those Calls might cost you maybe 300 NOK, you made 950 NOK. Note that if your prediction is common knowledge, Calls will be appropriately priced (=expensive), and there is little to make on them. And note also that if you were wrong, your Calls are worth less than toilet paper, so you lost the complete 300 NOK you paid for them. [all numbers are completely made up, for illustration purposes] You can make the whole thing easier if you define the raise of the NOK against a specific currency, for example $ or EUR. If you can, you can instead buy Puts for that currency, and you save yourself converting the money twice. There is some precedent but not to the same degree:  http://blogs.worldbank.org/prospects/what-can-history-tell-us-about-cartels-commodity-markets  The surplus of oil is scrutinized more because (1) it is vitally important and (2) it has been successfully restricted three times (Standard Oil, TRC, OPEC) over relatively long periods of time . [Here's](http://www.macrotrends.net/1369/crude-oil-price-history-chart) what I found. I think the gist of it is that because we've invested so heavily in pumping domestic oil in North America, it's lowering worldwide demand. Countries that rely really heavily on oil revenues, like Russia, Venezuela, Libya, Saudi etc., suffer when oil prices drop. Just because pricing isn't tracked, doesn't mean the dollar price is not backed up by oil (they are others factors involved, of course). But the very fact that OPEC, the worlds largest oil cartel, currently only trade in dollars, effectively means that everyone who wants oil needs dollars to buy it. Therefore, to function in modern global economy, dollars are always needed regardless of exchange rates or interest rates on bonds. In reality the amount debt the US has backed up against its currency wouldn't hold for any other country, apart from US, with its petrodollar status. "It's not impossible to forecast the future price of a commodity. However, it's exactly that; an educated guess, much like the weather, and the further out that prediction is made, the higher the percentage error is expected. A lot of information is gathered by various instruments, spotters etc at a very high cost of time and money, to produce a prediction that starts breaking down after about five days and is no more than a wild guess after about ten. How accurately a price can be forecast depends on the commodity. There are seasonal and thus cyclical changes in many commodities, on top of which there is a general trend which is nearer term. A pretty decent prediction can thus be arrived at with a relatively simple seasonally-adjusted percentage change algorithm; take a moving average of the last few measurements, compute the percent change versus the same period last year (current minus last divided by last) and multiply it by last year's number for the current day or month to arrive at a pretty decent prediction for the current and near-future periods (up to about as far ahead as you have looked behind). Another thing you may need to do is normalize. Many price graphs are very jittery; the price of a stock may fluctuate many percentage points on a single day, and there's a lot of ""noise"" inherent in them. A common tool to normalize is a box-and-whisker plot, which for a given time period will aggregate all samples within that period, and give you a measurement of the lowest sample, highest sample, median, and quartiles (the range of each 25% of the full sample space). Box plots can also be plotted on the ""interquartile range"" or ""middle fifty""; this throws away the very noisy outliers and constructs a much more regular plot from the inner part of the bell curve. You can reverse-engineer a best-fit line connecting the elements of each box, and the closer two lines are, the more likely the real future data will be around that area (because the quartile between those to lines is very dense; 25% of the values are in a very small range meaning many samples occurred there). Lastly, there are outside factors that are not included in simple percentage growth. Big news must be taken into account by introducing more subjective guesses about future data. If you see an active hurricane season coming (or a hurricane bearing down on Galveston/Houston) then it's reasonable to assume that the price of oil and/or refined oil products (like gas and jet fuel) will skyrocket. A cyclical growth model will not predict these events, but you can factor in the likelihood of a big change with a base onto which you add last year's numbers, and onto that you add regular growth. Conversely, when a huge spike happens due to a non-cyclical event like a natural disaster, you must smooth it out by reducing the readings to fit in the curve, otherwise your model for next year will expect the same anomaly at the same time and so it will be wrong. These adjustments are necessary, but the more of them you make, the less the graph reflects real history and the more it reflects what you think it should have been." What would be the best way to estimate / calculate the basis risk exposure of a commodity trading company? Naturally companies are very cagey when it comes to such info, but is there a way to come up with an approximate number? "This is the best tl;dr I could make, [original](http://reuters.com/article/idUSKBN19A029) reduced by 74%. (I'm a bot) ***** &gt; If the rig count holds at current levels, the bank added, U.S. oil production would increase by 770,000 bpd between the fourth quarter of last year and the same quarter this year in the Permian, Eagle Ford, Bakken and Niobrara shale oil fields.  &gt; India, which recently overtook Japan as Asia&amp;#039;s second-biggest oil importer, took in 4.2 percent less crude oil in May than it did a year ago.  &gt; In China, which is challenging the United States as the world&amp;#039;s biggest importer, oil demand growth has been slowing for some time, albeit from record levels, and analysts expect growth to slow further in coming months.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6i59zv/oil_prices_dip_on_further_rise_in_us_drilling/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~147659 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **Oil**^#1 **U.S.**^#2 **percent**^#3 **year**^#4 **crude**^#5" The papers you would need to buy are called 'futures', and they give you the right to buy (or sell) a certain amount of oil at a certain location (some large harbor typically), for a certain price, on a certain day. You can typically sell these futures anytime (if you find someone that buys them), and depending on the direction you bought, you will make or lose money according to oil rice changes - if you have the future to get oil for 50 $, and the market price is 60, this paper is obviously worth 10 $. Note that you will have to sell the future at some day before it runs out, or you get real oil in some harbor somewhere for it, which might not be very useful to you. As most traders don't want really any oil, that might happen automatically or by default, but you need to make sure of that. Note also that worst case you could lose a lot more money than you put in - if you buy a future to deliver oil for 50 $, and the oil price runs, you will have to procure the oil for new price, meaning pay the current price for it. There is no theoretical limit, so depending on what you trade, you could lose ten times or a thousand times what you invested. [I worded that without technical lingo so it is clear for beginners - this is the concept, not the full technical explanation]