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Sic Semper Tyrannis

Friday, July 18, 2008

Re: Pop goes the bubble!

Who Let the Bears Out!

Or at least that is what I hope to be singing.

Is the run on oil coming to an end? Hard to say, back in June oil made a similar move from the mid to upper 130s back to the low 120s, but it immediately proceeded to zoom right back up to new record prices. Recent moves are more significant than those June moves but such moves do happen.

A number of factors are reported to be in play. First off repeated news hinting at economic slowdown here, reports came out that oil inventories were up when traders expected them to be down, and the same for gasoline inventories which are reported at the upper end of average levels for the current time. Another factor, increased pressure to extract more energy resources from the USA. I do not think it coincidence CL took a hit the day Preisdent Bush came out and forcefully called for more domestic oil production.

However, there is still concern about the fragile nature of the main oil producers. Reports on an oil pipeline bombing in Nigeria suspended the drop (however today oil futures are up a bit to sideways). In addition, there are concerns about demand outstripping supply, even if there is enough oil in the ground for many years it is not getting easier to extract it.

A lot of blame is going around. Speculators are right now the favorite scapegoat but why should that be? Speculators do not care about the direction of the price, they only care about guessing the direction. If a trader expects the market to fall they change trading strategies and they still earn money from their trades.

Here are a couple of sites to keep your finger on the oil market:
The New York Mercantile Exchange
Gas Buddy (local gas prices)
and for analysis & insight: Seeking Alpha's energy sector section.

I find gasoline does peg closely to oil and it does go down as quickly as it goes up! Right now in the Valley the Gas Buddy site is showing gasoline selling in a range of $3.92/gallon-->$4.07/gallon with all reports currently under $4.00/gallon. This morning this was not the case. Gasoline pricing does lag oil pricing but it does follow in both directions.

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