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Crude Oil or Natural Gas: Which is the Better Trade Now? | Commodity Trading | Vijay Bhambwani - YouTube
Channel: Equitymaster
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hello viewers this is vijay bambani here
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and i hope my videos are helping you
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understand the markets better understand
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the subtle nuances that are not
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immediately apparent
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to the untrained eye
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now in this video i continue with uh
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my views on the energy space yesterday i
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talked about how crude oil a very
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complex commodity is basically become
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very volatile but clearly there are
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chinks in the armor of crude oil
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in this video i'm going to talk about
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natural gas
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very very convincingly one of the most
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complicated tradable commodities of the
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calendar year 2021.
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why do i call it the most complicated
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because of the sheer volatility what we
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are traders who are using uh statistical
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systems called statistical beta or pure
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price volatility
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this has been one of the most volatile
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counters out there and
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just to give you a sense of how volatile
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on an average the long period average
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intraday volatility of
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natural gas is between two to two and a
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half percent mobility
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uh per day
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but nowadays it is very common to see
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eight and even ten percent intraday
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moves
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once in a while four to five percent has
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become an acceptable norm nowadays on a
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day that natural gas does not move five
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percent in uh either direction it's uh
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uh like a very quiet day believe me so
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this is what is happening to natural gas
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and since i believe in a 360 degree
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world view i owe my
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viewers and weekly cash alert
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subscribers
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the when where why how
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of natural gas and why temporarily we
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are not trading it
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at this point in time you see if you are
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a subscriber of equity master's weekly
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cash alert you would have got a cash
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blueprint weekly cash blueprint now
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hearing i've divided the year into 12
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compartments monthly compartments and i
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have given you
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which commodity to trade in which a part
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of the year along with the reason why
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that's the 360 degree uh view along with
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the reason why you must also know why
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you are doing something because the
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cause and effect theory says if you know
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the cause you can estimate how much will
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be the effect and how long will the
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effect will last
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right so
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basically the winter season which is
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starting now uh november to jan or maybe
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extend up to feb depending on how the
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winter really pans out
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is a peak
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demand season for natural gas from
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heating perspective
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homes offices commercial establishments
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airports etc etc
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use natural gas for heating of course
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one of the fuels is not the only fuel
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there are alternatives but natural gas
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happens to be used pretty often
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and
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currently unfortunately natural gas has
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become a football
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in a tragic comedy
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geopolitical
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mental war games i can't put it any
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other way
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now you see what has happened is
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the russians who are
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really big boys in
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crude oil and natural gas export markets
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natural gas even more so
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have been constructing a pipeline called
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the north stream 2
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to germany which will take care of
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natural gas requirements of germany and
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parts of europe
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now this is a twin pipeline and the
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collective
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capacity of both these pipelines will be
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110 billion cubic meters of gas per
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annum
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the germans after the pipeline
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was completed in october
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refused to grant it regulatory
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recognition and a green signal to go
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ahead and start selling gas commercially
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because
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the
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pipeline had not
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adhered to and complied with some
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regulatory
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requirements
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initially the russians held out but off
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late they have now agreed to incorporate
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a separate company which will be the
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owner of the nordstream 2 pipeline
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and
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apply for regulatory permissions are
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fresh which might delay the commencement
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of gas but
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not as much as four months which is the
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regulatory time frame requirement for
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granting permission because the germans
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are saying look it's a public utility it
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is required for the winter so we might
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just might just
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fast track the process now might just is
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not something that we traders like we
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don't know whether it's going to happen
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as an exclamation mark or is going to
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remain like a question mark so there is
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uncertainty there
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now let's see why i said gas has become
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a weapon in the geopolitical
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war games in
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europe
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the russian president putin
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has
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basically uh tried to dominate crimea in
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the past and has invited economic and
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military sanctions from nato as well as
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usa
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he now has
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similar aspirations over ukraine and why
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ukraine you see this pipeline
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does not go from uh just
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russia to germany it passes through uh
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ukraine it goes through belarus it
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basically also impacts poland so all
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these guys are now players
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within a geopolitical hodgepodge and the
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melting pot where a lot of personal uh
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vested interests of these countries are
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now
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colliding
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now that
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the north stream 2 pipeline is made
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ukraine feels that it will be bypassed
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and it will stop receiving royalty
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and therefore it wants to shut down the
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taps
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belarus as a matter of fact a fortnight
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ago approximately actually turned off
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the spigots in its locality and and and
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stole the gas that was going
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towards germany
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the russians themselves for a while
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stopped gas
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sales to germany and diverted that sale
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to china
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why
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because the russians want the germans to
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fast-track
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the approval regulatory approval to the
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north stream pipeline and are therefore
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using gas
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as
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a geopolitical weapon
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sometimes they have been saying we'll
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give you enough gas to take care of all
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your citizens during the winter because
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it is a humanitarian commodity and
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sometimes they are saying look there is
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not much
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gas to give you by way of a surplus so
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we might just cut down the price supply
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of gas and hey every time this happens
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the price jumps up and down
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sometimes belarus is turning off the tap
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sometimes ukraine is threatening to do
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so and in between there are smaller
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players
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smaller in the sense because they are
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not visible to
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the front line and mainstream media like
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morocco
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morocco actually shut down the supply of
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natural gas to spain
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because it wanted to renegotiate
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prices now it's always about money we
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know that but
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is russia
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going to use
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natural gas
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as a weapon
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not only to get higher prices but also
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to pressurize germany and parts of
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europe
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not to meddle in ukraine while it tries
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to annex or dominate ukraine
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that's what is happening
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and who is getting punished with all
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these political and geopolitical
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football taking place
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you
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and me you and me as traders
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we enter into a trade and get kicked
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about in this political football where
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one country or the other is colliding in
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its uh vested interests and to top it up
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there is a winter which is just around
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the corner we don't know whether a polar
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vortex will hit us just like it did in
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end of december 2020 which only subsided
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by end of february 2021
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making our short sales in natural gas a
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protracted affair but definitely very
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profitable
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in that period but we don't know whether
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that kind of
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weather will occur this year because
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weather as we all know
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cannot be predicted with certainty
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so what's the game plan here am i
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telling you to forget natural gas and
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not trade it ever no at all
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that is not a solution but letting it
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sit quietly till things return back to
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normal and the dust settles seems to be
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a good option
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a week ago
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we traded crude oil rather profitably
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garnering more than four percent in a
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couple of uh uh i mean not even a couple
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of hours actually in under 60 minutes
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under one hour so i think
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in relative comparison even though crude
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is by no means
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less volatile or very very calm rather
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it is volatile but it is relatively
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a lesser volatile as compared to crude
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but
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to that extent where trading is
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concerned i think it makes more sense
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temporarily to shift focus to crude and
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of course keep uh years to the ground
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for uh natural gas whenever opportunity
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occurs we grab down on it like an eagle
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and
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collect some profits out there but
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as you've read in the weekly cash
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calendar
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the winter months are the most
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volatile periods for natural gas traders
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so
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like we did on the 15th of november we
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traded the uh crude oil rather
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profitably we are going to focus there
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but we are going to keep hunting for
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opportunities as usual i hope this video
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has also added to your knowledge not
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just giving you a timeline about our
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next trade but has also added to your
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knowledge about how professional
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commodity traders look at every signal
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at the ground level before making a
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trade
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on this cheerful note i'll bid goodbye
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to you not before reminding you to click
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like on this video if you liked what you
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saw subscribe to my youtube channel if
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you haven't already done so
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click on the bell icon to receive
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instant alerts about the fresh content
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being put about here in the comment
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section good bad or ugly i always
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welcome your
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feedback
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and do help me reach out to fellow
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like-minded investors and traders by
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referring my video to your family and
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friends
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thank you for your patience till we meet
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again in my next this is vijay bambani
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signing off for now have a very very
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profitable day ahead
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take care bye
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