An unstated reason I decided to tempt fate in Oct. 25's "Time to Try an Oil Short (USO)":
Kids don't try this without parental supervision. This is a high risk/low reward play.was the availability of crude. Saudi Arabia was pumping over quota to offset some of the disruption caused by the French refinery strikes and I figured the stuff would be sloshing around for a while.
[I direct your attention to the daring young man on the flying trapeze -ed]...
The futures declined a couple percent, life was good.
Then on Nov. 1:
UPDATED--Crapski: "Crude Oil Rises as Dollar Declines on Speculation of Fed Easing Measures"
As the Nazis said about June of '40: "But it was looking so gut".One of the things you have to learn about markets is to listen to what the tape is telling you.
The futures are up $1.92 at $83.35 after trading considerably higher.
On October 25 we posted "Time to Try an Oil Short (USO)" with the futures at $82.52.
Stopped out at a 1% move against.
A close below $82.70 would warrant another look at the short side tomorrow, otherwise the downtrend from the Oct. 7 $84.43 is broken.
Another lesson is "cut your losses". The implementation of lesson #2 is a varient of the Golden Rule of bank runs: "If you're going to panic, panic early".
Here's the headline story from Economic Forecasts & Opinions:
Despite the recent price surge in crude oil this week, basically going from $81.50 to $87 a barrel within this week--thanks to a Fed's QE2-induced weak dollar-- oil inventories actually added another 2 million barrels build to the current stockpiles.
These are the highest inventory levels for crude in 2010 and are just shy of the 370 million mark, which will be punctuated next week with another build in crude stockpiles.
(See Stocks Chart from the U.S. EIA)
OPEC Compliance - 61% and Going Lower
Oil imports fell to 8.6 million barrels per day from the prior week's 9.5 million (See Chart). So we even had a build with lower imports, and this trend will not continue as even before the recent price spike, OPEC members were producing beyond quotas (OPEC average compliance rate was at 61 percent in Oct.)
With elevated oil prices and the need for revenue in these challenging times for countries struggling with increasing debt burdens, expect the over producing to only get worse. .
Contango Tankers & Non-OPEC
Another factor that is eventually going to put downward pressure on crude oil prices is that at $87 a barrel, any oil that was being stored in container ships is going to be dumped on the market at these elevated prices. Not to mention the fact that non OPEC countries will be producing as much oil as they possibly can with these higher price levels....MORE