This had to happen. Oil had come far and fast, and markets do not move in a straight line. But the energy crisis has not been called off, and Oil imports into the U.S. are not going to increase year over year EVER again.
This is not the popping of a bubble. Just go to the CFTC.gov website and review the commitment of traders reports for light sweet oil. Notice how the "non-commercial" long interest is at its lowest point in over a year? That is hardly indicative of a bubble.
Also, for a bubble to be forming, oil inventories would need to be high relative to recent history and rising. The following was from this weeks special file report from the U.S. Department of Energy's E.I.A.:
U.S. commercial crude oil inventories (excluding those in the StrategicRe-read that last line; "and are in the lower half of the average range for this time of year".
Petroleum Reserve) decreased by 1.6 million barrels from the previous week. At
295.3 million barrels, U.S. crude oil inventories are in the lower half of the
average range for this time of year. Total motor gasoline inventories increased
by 2.9 million barrels last week, and are just above the upper boundary of the average range. Both finished gasoline inventories and gasoline blending components inventories increased last week. Distillate fuel inventories increased by 2.4 million barrels, and are in the upper half of the average range for this time of year. Propane/propylene inventories increased by 0.3 million barrels last week but remain below the lower limit of the average range. Total commercial petroleum inventories increased by 1.9 million barrels last week, and are in the lower half of the average range for this time of year.
No bubble here, folks. That does not mean that markets will not correct, they will (and are doing so as I write this).
I don't give investment or trading advice on this blog. I will tell you that I had sold all my Oil futures and will be buying again. As to when, well that remains to be seen. I would like to see a good washout, complete with some jackass on CNBC claiming that the bubble has burst and it is all down hill from here.
Good luck!
Mentatt (at) yahoo (dot) com
4 comments:
If the reason for the fall in the oil price is demand destruction in the USA, I'd guess its just the easy economies in business and a few less miles driven.
The next economies will be more difficult, and its hard to make substantial economies on space-heating, especially without investment in insulation or new heating plants. That would suggest the next substantial price rise will come in October/November.
I still think $200 by Xmas.
One nice summer (Chicago has been clear and 84 degrees so far) where everyone can walk & ride a bike & all the college kids are off public transportation is one thing. Let's see how much further demand will fall in the fall and freezing winter. Also, the stupid commie Olympics will be over soon, and China will be buying oil again, even with the less favorable subsidies.
Donal:
I don' think there has been any "demand destruction". Inventories are down year over year for ALL commercial products (crude, gasoline, diesel, propane, etc...). The U.S. has, in fact, experience SUPPLY destruction. The media just has it wrong - again.
Markets do not move in a straight line. When oil went straight up, we knew their would be a tough correction. Still, the correction in Oil is NOTHING compared to Natural Gas.
Opportunites abound. The ratio of WTI to Energy index is the lowest in its history.
This isn't related to your post Greg, but it is news from your general living area, so I wanted to post it:
Hunger is S. Florida's dirty little secret
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