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.
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Disclosure: No positions