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Friday, April 8, 2011

not a perfect storm

The price of oil was impressive today. Gotta call it like I see it, despite my new short position.  The bullishness of oil was obvious, and it is highlighted within the intraday chart of the USO.

It's a momentum-whore's wet-dream.  The herd mentality is blatant on CNBC with all the traders, all-the-traders, saying oil will keep rising. (I use the term momentum-whore in the nicest possible way, as I too am a momentum-whore at times :)

The linked article from CNBC is the first time I heard OPEC supplies are being affected from the Middle East unrest.  Joe Terranova simply states "...OPEC exports are down" for the month of March.  I have to assume the big boys are better connected to commodity related information, especially established oil traders.  But my searching did not produce anything material.

The only corroboration to Joe's claim was an article from April 5th that highlighted a Barclay's analyst that said “OPEC production for March shows sharply lower Libyan output, falling Nigerian volumes and higher Saudi production, highlighting the tight market conditions.” Basically, the quote says nothing we did not already know, except inferring a tighter OPEC supply.

The actual OPEC numbers do not corroborate a reduction in OPEC supply.  On pages 39-40, the report points out an increase of 110 tb/d of OPEC supply for Jan-to-Feb.  The actual numbers from OPEC for the month of March are due April 12th. (I have this strange feeling that the big-boys may change their whoring ways when this report comes out.)

Regardless of what the actual production number is, this month the States are seeing some major demand destruction.

Tuesday will be interesting. If OPEC remains consistent with their output and the largest consumer of oil is not consuming as much, wouldn't that mean the +$110-120/barrel argument no longer exists?

I will be looking to add to the USO short before Tuesday. I will re-assess the position after the OPEC report.

(Oh, and I am completely leaving out the fact that investment banks and hedge funds have enough crude in tankers that rival the Federal Strategic Oil Reserve, and the fact that speculators have caused a divergence between the fundamental supply/demand aspect of the market and the price of the commodity in the past. Remember that $147 spike? Apparently, the CFTC or NFA do not and did nothing since the last spike to prevent such massive amounts of leveraging allowed within the commodity markets.)

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