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IEA move is great

I am amused by the negative reaction shown by many of  the talking heads (NASDAQ:CNBC) today about the move by IEA. People are wondering about the timing of the move (i.e. is it related to politics). Peple can question the timing (might be this should have been done when the Libyan hostilities started)...but I don't think people should question the  effectiveness of the strategy. As an active oil futures trader, the move by IEA is a strong signal to the traders that speculative trading (long side) will  be very risky from now because there is always a threat of more release from the reserves. So from this point onwards, a lot of speculation will be driven (at least for the rest of the year) away from the market place and prices can be based on true demand and supply factors. This move will have more of an impact  on Brent which in turn will have an impact on WTI. Keep in mind WTI alredy has huge excess supplies...the price spike in the last few months was more on speculation than true demand.

Don't want to get too technical here with refinery data and usage etc....but here is a simple data point: Inspite of all this hype about demand going up,  Commercial crude stocks on June 17th 2011, was 363 million barrels which was .4% less than the same time last year. During this time WTI price has gone from 81 to 94 (price as of June 17th).

At the same time numbers coming from Europe, US and China show a slowdow.  While all this is going on you also have a geopolitical issue of the Saudis not wanting Iran to dictate the price. The Saudis will be happy with the price going down to low 80s / high 70s. Don't want off on a tangent on a political discourse, but a price of low 70s will be a big blow to the Iranian economy which will suit the Saudi interest very well. Also no one really has a good grasp of how much excess oil the Saudis will be pumping the next few months. As I am writing this article, Japan has announced that they will reduce mandatory oil stockpiles from 70 days to 67 days.

With so much of supply overhang in the air, I just do not see what propels oil higher in absence of a new disaster popping up in the mid east.

So am predicating a price drop in WTI the next couple of months to high 70s..could go to the low 70s, this speculators start pilinon the shorts.

note: after the IEA release went short Augst crude.