It was a very volatile week in the crude markets with the low on Wednesday of $121.61 and a rocket rebound to close the week at $138.50. I watched it happen and I still can't believe it when I type that sentence. There was some big money made and lost last week by the major players. If you were on the right side of the trade it was a grand slam homerun. On the wrong side and you could be working at McDonalds next week trying to make ends meet.
It was a perfect storm for the crude markets with about eight things hitting the news wires on Friday morning. I am not going to repeat everything here because I wrote a long article in the Option Investor weekend commentary. If by chance you don't get that just email me (Jim at OptionInvestor.com) and I will send it to you.
The crude inventories fell again on Wednesday by -4.8 million barrels but nobody seemed to care with all the testimony in Washington and CFTC comments every hour or so. However, when everything wrapped up on Thursday and traders realized it could be months before any changes were made it was back to trading once again.
Crude Inventory Table
Crude inventories have fallen -19 million barrels over the last three weeks. If there is so much oil in the market where is it? Gasoline rose +2.9 million barrels on a +2% spike in refinery utilization. Demand fell -1.4% for gasoline over the last four weeks according to the EIA. That is much better than the -4.7% drop MasterCard was claiming in their Spending Pulse report.
The spike in crude is going to send gasoline prices to the moon. AAA said they were $3.989 on Thursday and analysts are expecting another 10-15 cent bounce by Wednesday. If Morgan Stanley's $150 by July 4th prediction comes true then we can expect to be paying $4.25 to $4.35 per gallon before the fireworks fly. Remember about two months ago when the $4 by Memorial Day prediction was made? How many really believed it would happen?
The spike on Friday was a record dollar gain for the Nymex. It was the second largest percentage gain after the Iraq invasion of Kuwait.
II was surprised to see the oil stocks falling so hard with oil prices up +$17 in two days. The -390 drop in the Dow and -75 on the Nasdaq definitely soured sentiment and traders were taking profits everywhere but in crude.
We are still two weeks away from the June 20th expiration of the July contracts so anything is possible. 50% of the volume on Friday's spike was in the front month contracts so it was definitely momentum players jumping back into the market.
I suggested last week that buying a dip to the 30-day average at $122.50 would be a good entry point for longs ahead of the summer hurricane season. I did not realize so many people would act on it. (grin) Wednesday's close was $122.30.
Another puzzle was the $20 drop in Transocean over the last three weeks. With the majority of unexplored territory in deepwater why is RIG falling out of favor? The drop was enough to take us out of our position.
We are also close on a couple others and will probably be stopped next week unless Monday opens higher. I mentioned last week that I was growing frustrated with Carbo (CRR) going dormant for three weeks and would give it another week before dropping the play. Sure glad I did. CRR closed Monday at $48 and hit $55 on Friday. The spike came after Smith International bought W-H Energy Services for $3.2 billion. CRR was mentioned as a potential takeover target as well. Also mentioned was TESO, TTES, FTK, SPN, KEG and PKD.
Important - Important - Important
OK, this is the important stuff. The Association for the Study of Peak Oil (ASPO) is holding their annual three-day conference in Sacramento on September 21-23. This is 2.5 full days of up to date information on the current status of peak oil, how to invest for it, live with it and what the future holds. There will be dozens of speakers from all over the world whose names you would recognize instantly on the news. For me this is the most important conference I go to every year. Our readers are always asking questions about what the future holds and how we should plan for it. This seminar covers all the bases from the current status of production, reserves and declines to where the problems are starting to appear. I can't emphasize enough how informative and educational this conference will be. I have attended for the last three years and I would not miss it for the world. The cost is $375 and that is actually the cost of the food, speakers and meeting rooms. ASPO is non-profit with a goal to spread the word about Peak Oil and Gas. They don't make a dime on the event.
There is only seating for 250 people and it always fills up fast.
Plan on meeting me there and we can spend three days discussing what we are learning and planning on how to profit from it. Follow this link to register. Be sure to put my name in the "How did you hear box" so we can all be grouped together. Send me an email after you register (Jim at OptionInvestor.com) so I can put you on my mailing list for updates and discussion plans. I cannot stress how important this conference is. The general public has no clue about what is coming. I have been educating you for 4 years and this is where I go to learn. Go here to register: http://www.aspo-usa.org/aspousa4/
July Natural Gas Futures Chart - Daily
July Gasoline Futures Chart - RBOB Daily