2008 oil trading presentation

Delta Index16th January 2008 Shillingstone Ltd.

Trading Oil & Energy related DerivativesTroy Lavin

Delta IndexShillingstone Ltd.

Quick Introduction

Broker for Man Financial

Trader for Glencore

Now trading my own fund

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Going to cover…

Background to Crude Oil

The Futures Market

How I trade

Outlook 2008

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Why Trade Oil?

It’s interesting:Most important commodity in the worldMost political commodity

It’s transparent, liquid, highly leveraged

Many trading opportunities

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When Oil got Interesting

OPEC formed in 1960

Oil shocks 1973 & 1979

World recession, fuel efficiency, insulation, exploration, alternative fuel sources, International Energy Agency (IEA), SPR

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Types of Oil

Oil quality varies by deposit Ease of refinement - light/heavy,

sweet/sour Benchmark crudes - WTI, Brent, Dubai Product derivatives - Gasoline, Heating oil,

Gas Oil, Jet fuel

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The Futures Market

Spot vs. Futures Futures market began in 1983 in US (1988 in

UK) Most liquid and transparent way to trade oil Desert Storm - Aug. 1990 to Jan. 1991: Birth of

the modern oil market Backwardation and contango

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Backwardation vs Contango

Jan 2007 - Contango

48.00

50.00

52.00

54.00

56.00

58.00

60.00

FEBM

ARAPR

MAY

JUN

JULAUG

SEPOCT

NOVDEC

JAN

FEBM

ARAPR

Current Oil Market - Backwardated

88.0089.0090.0091.0092.0093.0094.0095.0096.0097.00

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Market Participants

Friends Producers Consumers Refiners

Enemies Institutions Funds Locals Private Traders

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Delta IndexShillingstone Ltd.

New Game - Perfect Storm!

Security of supply drove prices Demand now driving prices - China/India Era of cheap money Fund effect has been felt everywhere US Dollar Depreciation

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An Average Day

08.30 - Singapore Pricing 09.30 - London opening 11.00 - East Coast US waking up 14.00 - NYMEX officially opens 16.30 - London pricing 19.30 - NYMEX/ICE settlements

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Wednesday – Stats Day

US Energy Statistics – 15:30 DOE Vs API Petroleum Administration for Defence Districts

(PADD) …… 5 PADDs PADD 3 – Major Import and Refining Region Crude PADD 2 (Mid West) Heat PADD 1 (East Coast) Gasoline PADDs 1&5 (West Coast)

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Delta IndexShillingstone Ltd.

An Average Year

Q1 - Fund activity - winter in the West prepare for US driving season

Q2 - Market tops Apr-May Q3 - Hurricane season - end of US driving

season Q4 - Profit taking - prepare for cold

weather and New Year

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How I trade

Full Time Trader Look for patterns, trends, anomalies Not afraid to book profits, cut losses Trade short term on flat price Trade longer term on spreads, arbs, etc Fund activity - turn of each quarter GSCI - day 5 to 9 each month

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Two Schools of Thought

Fundamentals Economics Supply/demand Geopolitics

Technicals Sophisticated charting Black box funds Historical data

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Technical Thoughts

KISS - Keep it Simple, Stupid Moving Averages - 5/20, 8/34, 100/200 Trends - lines and channels Relative strength - RSI and Stochastic Japanese Candlesticks - visually effective No silver bullet

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Delta IndexShillingstone Ltd.

Delta IndexShillingstone Ltd.

Delta IndexShillingstone Ltd.

Delta IndexShillingstone Ltd.

Delta IndexShillingstone Ltd.

Basic Trading Rules

Protect your war chest - 2% rule, Keynes Trend is your friend Avoid the more-on trade Discipline - cut losses, stick to a winning formula Patience - trades need time and room Keep your emotions in check Take a break…

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Outlook 2008

$100 was a target - OPEC’s thoughts China/India not going away but

commodities may have got carried away US elections - economy and $ effect Nigeria

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Supply Issues

Peak oil production? Iraq - US pull out…civil war? Iran - nuclear ambitions? Saudi Arabia - Al Qaeda

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Demand Issues

US Recession Credit Crunch - Worldwide Effects US Dollar Direction Fuel Efficiency, Green Issues, Nuclear

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Oil Trading Resources

Websites: EIA, API, WTRG, Reuters, Bloomberg, Dow Jones, TWC

Books: Trading for a Living, Market Wizards

Daily: Platts, PIRA, Gartman Letter

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Questions & Answers