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Crude Oil, Running on
Vapor?
Research for Online Investors
by John Dalt
8/12/09
The real surprise
today was the reaction to the Energy Information Agency (EIA)
report. Crude inventories
continue to build. Crude
Oil stocks increased 2.5 million barrels, gasoline decreased
one million barrels, and distillates increased 800,000
barrels. Add them all
together and we have 2.3 million barrel build in
inventory. Crude oil
dipped then regained to lose only fifty cents after the report
came out! We have all
heard that the market can stay illogical longer than you can
stay solvent; we are witnessing illogical movements in the oil
market.
The market is
anticipating an increase in oil usage with increasing economic
activity. While the stock
market has been on a nice run for the last few weeks, and is
bumping resistance at 1007, this is an imperfect predictor of a
recovering economy. Crude oil is used for transportation,
natural gas is used for production.
Crude, gasoline
and diesel had a net build of 600,000 barrels last week and the
net build in inventories the previous week was 4.9 million
barrels! I have called
crude oil the trade of the year, but you have to be willing to
step aside, and take profits, when the fundamentals are going
against you.
Some more
statistics that cause us to turn bearish on oil, for the short
term. Refinery inputs are
down 1.7% in the last three weeks, and down 4.5% from last
year. Gasoline production
is down 1.3% and distillates down 4.2% in the last three
weeks.
Following are our
two familiar charts that graph the inventory and days of
supply, both are moving in the wrong direction for higher crude
prices.
Our conclusion for
your consideration, oil is trading on vapor.
A reflection of the larger
market advance. Don’t step in front of a truck,
especially a diesel, but if the current market enthusiasm
wanes crude will fall harder and faster than the general
market. Short USO,
buy DUG, or if you are brave and have nerves of steel,
short DXO.
The Federal Open
Market Committee (FOMC) kept interest rates the same, and
extended buying treasuries into October, rather than ending in
September. The market was
up before the news, and then accelerated higher.
The report stated that inflation
should be “subdued” as unemployment and idle capacity will
limit the ability to raise prices. The Fed said unemployment is likely to top
10%, as companies will be slow to rehire.
This is after unemployment dipped
to 9.4% in July. I have no
doubt that will be corrected in a future
report.
To clean up old
business, subscriber C.F. wrote a week ago asking for
advice. It seems his
friends were drinking all his profits after work.
I advised him to employ a
trailing stop loss, that he had obviously not researched his
investment completely. Good news this week, C.F. employed a trailing
stop loss, and left after four drinks before his friends could
leave. C.F., congrats on
leaving while the music was still
playing!
The information presented in this newsletter is based on
generally available news releases, corporate filings, current
events, interviews and the editor’s opinions. It may contain errors and you
should not make investment decisions based solely on what you
believe you have read here. Do your own research, it is your
money. If you lose
it, it is your responsibility, not ours or your
grandmothers! The
editor may or may not have a position in any securities
discussed. The editor
may have held a position in a security earlier, or in the
future.
Swimming in
Crude
Crude Oil Bull or
Bear?
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