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Chapter 28, Part I. Intermarket Analysis - Commodities. Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 26, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Crude Oil

    Commander in Pips: The same logic could be applied to this commodity also. May be you know what country amongst the majors is the largest Crude oil exporter?

    Pipruit: Well, I don’t know exactly, but just one rise in my mind – Canada, may be, because hardly this is Britain, Switzerland or the EU.​

    Commander in Pips: Well, you’re absolutely right. As of 2009 Canada is 6th world largest producer with around 3.3 million barrels per day. Although this is not so impressive, as Russia with 10.12 million barrels per day, but there is another reason why it is so important for us. What reason?

    Pipruit: Well, maybe due to geographical closeness to the US, Canada supplies all crude oil to US?​

    Commander in Pips: Absolutely. Canada is the largest Crude oil supplier to the US and 99% of its total export comes to the US. This is about 1.938 million barrels per day, according to EIA. Canada links with oil and USD as stronger as no other major country and its currency. Hence, we can count on some correlation between CAD and oil prices. Since Crude oil is even more important for the world economy than gold – in fact this is the blood of the economy. Crude oil forces to move and run almost all machines in the world directly or indirectly – this is the world’s major energy source.

    The second reason is that Canada’s economy mostly depends on export and crude oil is a significant part of it. That’s why Canadian currency shows sensitivity to crude oil price changes.

    Chart #4 | CAD/USD and Crude Oil futures monthly chart

    Commander in Pips: Now, if we calculate correlation then will get impressive number – 90.26%! But this correlation comes not just because Canada is an export country, but because it export 85-90% to the US. That’s why the Canadian economy strongly depends on the US and their consumer strength. If demand in the US falls, then Canadian producers will start to reduce oil production. This will hit the CAD, because export revenues will be smaller and hence, budget profit lower. Quite the opposite happens when demand is growing. That’s why Crude inventories - Oil storage data from US that is usually released on Wednesdays is very important.
    #1 Sive Morten, Dec 26, 2013
    Lasted edited by : Oct 8, 2016
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