Option Investor

$143, Do I Hear $150

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Crude hit a low of $131.95 on Wednesday on a "surprising" 800,000-barrel build in inventory levels. Sure, and the dog ate my homework. By afternoon on Friday crude had risen to $142.99. Let's just call it $143 and ignore that penny. Another week and another $10+ spike in crude. The shorts are probably still licking their wounds.

The rebound was reportedly on the comments from the OPEC president that oil prices could go to $150 or even $170 this summer and that OPEC was not going to increase production. Libya's oil minister even threatened to cut production because of the glut in the market. That would be a cold day in hell for cash strapped Libya to cut production at $140 per barrel. It is all talk and no action. Anybody with oil is producing it as fast as they can. Saudi even went the extra mile to appear to be caving into market pressures with their two announced increases but you never hear them offer to sell it at a discount. It is all smoke and mirrors and we know it but the rest of the world is blind to the games.

Next week could be volatile. Duh! How would we know the difference? Every week has been volatile lately even though oil has been stuck in a range over $132. The volatility I am expecting could come on Tuesday. That is the first day of July and fund that got long oil to beef up their end of quarter statements is free to bail on Tuesday. We have inventories on Wednesday then an ECB meeting on Thursday. The ECB is expected to raise interest rates and that will strengthen European currencies and weaken the dollar. That would put upward pressure on oil as a hedge against the dollar if you believe in that scenario as laid out by dozens of analysts. I believe it has some credibility but nowhere near the impact it is given in the press.

I checked the hurricane map again Friday night and nothing on the horizon. So far the season has been very quiet and our run of luck will eventually run out.

The coal sector benefited from the window dressing crowd late in the week. The early week decline ended Wednesday morning and it was all up hill from there. Walter (WLT) gained $10 on Friday, Alpha Natural (ANR) +8, MEE, PCX and BTU +$3. Coal itself hit a historic high on Friday.

Natural gas hit $13.48 again and sure looks a lot like a potential top but I am not brave enough to short it. When the first hurricane appears on the radar the shorts will be crushed.

Gasoline prices had declined to 4.06 nationwide but the spike over $140 is going to pump it up again. Most analysts expect $4.25 as a probable high later this summer.

I added the weekly natural gas injections and storage to the oil inventory graphic. Weekly production is not large enough to meet demand throughout the winter. Therefore we have to inject gas into storage over the summer months to supplement winter production. If we have a hot summer and more gas is needed to produce electricity it impacts the amount left to be injected into storage and that impacts prices. If we have a hurricane that shuts production in the gulf that also impacts injection rates. Peak storage is just over 3,500 bcf and when winters are cold it is barely enough.

Oil/Gas Inventory Table

Look for window undressing on Tuesday to send prices lower and a rate hike from the ECB on Thursday to send crude higher. Very light volume could cause some wild swings throughout the week.

Don't forget the Association for the Study of Peak Oil (ASPO) is holding their annual conference in Sacramento on Sept 21-23rd. This is a full 2.5 days of intensive, as in 8:AM to 9:PM information overload from dozens of experts from around the world on the status of Peak Oil. The cost is minimal at $325 because they are a non-profit and make no money on the event. Follow the link below to register and join me there. We can discuss each presentation and plan trades for the coming year. Put my name in the "how did you hear" box so they can group us together for the meetings. Go here to register:

Jim Brown

August Crude Futures Chart - Daily

August Natural Gas Futures Chart - Daily

July Gasoline Futures Chart - RBOB Daily


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