Option Investor
Commentary

Oil Closes at New High

HAVING TROUBLE PRINTING?
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That is beginning to sound like the refrain from some popular western ballad but it is the truth and I have to print it. Well, I don't have to but you get the idea. Unfortunately oil stocks were caught in the profit taking tide and swept lower with the rest of the equities. You probably know what comes next but I need to repeat it as well. Our "buying opportunity" gave us the opportunity to reenter some trading positions.

As long as we are in hurricane season, have seven refineries down with problems and Deputy Ministers saying $70 a bbl and no additional supply is available the price will continue to go up. Every dip is a buying opportunity for new long-term positions as well.

The new tropical depression soon to be named Irene if it gathers enough force is just a taste of what is to come. The predictions are for 7-11 more hurricanes this season with Aug/Sep the prime time for major storms. Oil prices typically fade once September passes if nothing was blown away. By late September we will know how the heating oil supply is going to play out and if shortages will appear. From the recent news events it is more likely we will have a natural gas shortage this fall than a heating oil shortage. Our gas plays should continue to outperform.

We exited the XOM position just in time as news that Lee Raymond was retiring knocked it back to support at $58. Personally I think his retirement is a good thing and hope his successor has a little more vision. The drop in XOM knocked the wind out of the XLE with XOM 20% of that index.

December Crude Chart - Daily

December Natural Gas Chart - Daily

 

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