The Oil Short Squeeze Is On

The short squeeze I predicted three days ago is under way, helped by a weaker dollar and better stock market sentiment. Russia is preparing to announce that it will work with the Organization of the Petroleum Exporting Countries (OPEC) to coordinate a reduction in output. (The full article on Russian output cut can be found here.) This is positive news for oil bulls. Oil may continue its upward move to $50 a barrel in the next few sessions.

Oil Volatility Reaches 22-Year High

We have seen high volatility recently in every market, including oil. Options show the highest volatility in oil since 1986, and even though prices have fallen dramatically, we’re still seeing daily ranges that are $3 to $5 a barrel. It`s a trader`s market with fear running high.

Russia May Cut Output

Faced with falling oil prices, Russia is preparing to announce that it will work with the Organization of the Petroleum Exporting Countries to coordinate a reduction in output, the Minister of Energy said Wednesday. This is the first time that the Kremlin has offered to reduce output.

Price Overshoot to $20? Nonsense

One asset manager from the Bank of China recently said:

Prices tend to overshoot both on the upside and on the downside. In the context of the latest movement $20 is only one standard deviation from $35, which I consider to be the long-term equilibrium price.

That's like Merrill predicting $25 oil. If they had forecasted the oil decline, maybe they wouldn't have needed to sell themselves to Bank of America.

I have to say that these projections seem like those made back when oil was close to $150, which saw oil soon heading to $250. I really don`t think oil will go into the low $30 range, much less to $20. The consensus projection on the Oil Traders Blog points to $53 USD oil in 2009. But the oil market is active and opportunities on both sides of the market are plentiful.

Disclosure: no positions

Comments

[sickofthehype:]

"That's like Merrill predicting $25 oil. If they had forecasted the oil decline, maybe they wouldn't have needed to sell themselves to Bank of America"

My sentiments precisely.

2008 Dec 11 04:46 PM

[Crude Oil T...:]

This is an easy trade. When oil corrects to the upside that much in one day you are almost guaranteed a big pull back with so many profit takers out there in this environment. Take a chance to start your position in DXO [2X long crude].

2008 Dec 12 08:07 AM

[Kunst:]

Ditto DXO. This is like fishing in a barrel. Oil prices now have swung to the opposite side of the pendulum from July's $147.

2008 Dec 14 12:00 AM