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It Won't Be Long Now

With oil prices hitting historic intraday highs, which correspond nicely with contract highs it should not be long before new highs are set and the selling begins. Most analysts are targeting $80-$82.50 as the summer high and that could happen over the next two weeks. Once set and profit taking begins it could be a rapid decline.

The wildcard here is the hurricanes and the next soft deadline for Iran of July 15th. I have more faith in the hurricanes than I do in Iran agreeing to any kind of settlement. This means the outlook remains rocky despite growing quantities of oil in inventory. Everyone is betting on a supply problem while refineries are swimming in crude with more heading in our direction.

My only hope is that the spike to $80, if it happens, will be orderly and with several days of hang time before the decline begins. There is a price where speculators will exit and I believe $80 is the number. We do not want to take any new energy positions before September and we will sell some covered calls once $80 is hit. Once hit we will begin exiting some positions and protecting others.

We are going on a summer position diet with a target of 7-8 positions total before late July in anticipation of an August dip in oil prices. If we get some hurricane activity it should push prices higher for one last rally before the demand drop in August. That will be buying time again for energy.

Jim Brown

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