Option Investor

Six Weeks

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Crude inventory levels fell for the sixth consecutive week with another major drop of 3.3 million barrels. That brings the streak to -21.1 million barrels lost in six weeks. Extending out to 10 weeks only has one positive weekly gain and a loss of -28.3 million barrels. Since we are in the heavy use winter period and cold weather in the northeast has increased usage of heating oil and natural gas is this only the result of increased usage? Not hardly! It is the result of tighter global inventories and refiners not wanting expensive oil on their books on Dec-31st. That is tax day for refiners and paying taxes on a few million barrels of $95 oil is not high on their list of things they want to do. Every million barrels is $95 million worth of taxable commodity. Oil last week was the hot potato that nobody wanted to be holding when the band starts playing Auld Lang Syne on New Years Eve. (Want to impress your friends? Here are the lyrics: http://www.youtube.com/watch?v=eG3afAIi6IQ )

For whatever the reason inventory levels are dropping fast. In this chart contrasting prior year inventory levels you can see our current line (solid black) is dropping like a rock from all time highs back in July to the bottom of the historical channel last week.

DOE Inventories

The next 3-weeks will be the key to the puzzle. If inventories suddenly shoot higher we know it was the tax deadline causing the drop. If they continue lower then we know something else is wrong and bigger trouble lies ahead. I literally just finished about 500 hours of research for the end of year article and put the finishing touches on it on Thursday. I have never been more convinced that our days are numbered in America. Trouble is brewing and should these inventories continue to fall it could be part of the bigger picture leading up to peak oil.

In stock news for the week it was as quiet as a church mouse. You would have thought the energy sector took the week off. Crude pries made it back to $97 on inventories, troubles in Iraq and the Bhutto murder. Other than watching oil creep higher and funds marking up the leaders for year end there was nothing worth watching.

In one amazing news article China promised to "play fair" as it tried to corner all the oil reserves around the globe. China pledged its search for oil and gas to power its booming economy will be carried out in a spirit of fair play and international cooperation so as not to disrupt sensitive international markets. "China did not, does not and will not pose any threat to the world's energy security," the announcement read. I was shocked they made this public statement because I have been saying for years they are locking up all available reserves to hoard for themselves rather than allow normal commerce from those reserves to continue. For them to make this statement out of the blue is the same admission of guilt as a murderer walking into a police station to say he did NOT kill someone the police did not even know was dead.

To me this is a direct admission of guilt for them to make the claim without anybody but me accusing them of doing it. China has locked up millions of barrels of reserves around the globe because they know peak oil is coming and they know their country will remained locked in their mostly 20th century state if they do not have oil to fuel their expansion and industrialization. They are the only country actually planning ahead to protect future oil supplies by actually buying the reserves ahead of time as quietly as they can. This admission by China is simply one more smoking gun clue that trouble is headed our way. They also said they were committed to clean energy but we know they are completing one new coal fired electric plant a week with zero emissions controls. A word to the wise, if their official press corps lips are moving they are lying.

I am going to cut this short this weekend and finish up on the end of year project materials and spend some time out of my chair for a change.

For the end of year renewal effort I have written a 120-page update to my ongoing peak oil view. In addition to that effort we located a professionally produced video explaining the peak oil problem and we are giving that away free with a renewal. I strongly recommend you get this video and pass it around to all your friends. View trailer here.

Jim Brown

February Crude Futures Chart - Daily

February Natural Gas Futures Chart - Daily

January Gasoline Futures Chart - RBOB Daily


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