EIA Gives Crude Oil a Shot in the Arm

The crude oil trade came back with a vengeance yesterday. I have called oil the "trade of the year" but had become bearish in the last three weeks. We had broken the trend of declining inventories, the rally was running out of buyers and the general market looked lower. I surmised that some of the “oil on ships” that was sold on futures last spring was showing up in port and oil prices would correct lower.

The Energy Information Agency (EIA) gave crude oil a shot in the arm yesterday. Inventory dropped 8.4 million barrels. Gasoline inventory dropped 2.1 million barrels. Diesel and other distillates dropped 700,000 barrels. I can’t tell you how surprising these numbers are to me. Get long oil - the trade is on!

Here are our familiar charts. We have almost erased the build in inventory in one week.

We have lost profits by stepping out of the oil trade for the past two weeks. I hate that, but there was no compelling reason to own oil when inventories were building, the dollar was strengthening, and investor confidence in the world economic recovery seemed to be waning.

If you cannot make a good argument to be in a trade, you are better to be out. By my calculations, we have missed a 3% gain on crude oil. I accept that. I was fearful of a 20% pull back. Before you rush into the U.S. Oil Fund (USO), we should be a little suspicious of the big change this week. It wouldn’t surprise me to see a big swing the other way next week.

We all know the self-serving nature of analysts opinions, you never know the master they serve. My opinions, suggestions and observations are without any purpose, except to give you insight to what is occurring in the market. With one bit of information, you may protect your nest egg or profit.

I accept NO money from any company or firm to push a stock or viewpoint. Even if I agreed with them, I would not take their money. You deserve that guarantee. I have seen too many “pitches” only to discover the fine print that the company has been paid to promote the stock.

Disclosure: No positions

Comments

[TradingHelp...:]

Very well written. A price of $75 suits both buyers and sellers I think?

Aug 20 04:26 AM

[jimhenry2008:]

You don't need a voucher, dealers will apply a credit at purchase


Jimhenry
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Aug 20 04:40 AM

[perceptions...:]

Good comment, DJIA=never1...:, well thought out, short, but properly delivered and good grammar!!!


On Aug 20 06:38 AM DJIA=never10.000 wrote:

> .

Aug 20 07:16 AM

[Alan von Al...:]

John, I think floating storage and some transshipment to Europe explains the drop in crude inventory. No need to keep refined products you can't sell. I still see $60-65 barrel as equilibrium price.

Aug 20 09:45 AM

[LIVE FREE O...:]

John - Short silver (puts on SLV or long ZSL). We are in a recession/depression with deflation. All commodities go down with stocks under these circumstances. When the dust has settled and another 10 trillion dollars is wiped out, gold will be look'n good but for now silver has topped and is sliding down.

Great article as always.

Thx!

Aug 20 09:58 PM