Greybeard traders know that oil often experiences moderate
seasonal price weakness running from late April into June / July.
The big seasonal build of petrol stocks completes in the spring
and demand eases off. Gasoline production is up about 5% this
year in the US, providing extra stock for the upcoming prime
driving season. But Jun. '10 oil has plunged from near $88 bl. in
April to close near $71.50 today. Down 18.5%, this is not your
mild seasonal dip.
Traders have concerns beyond goodly refined product supply. They
have taken note that China -- a huge crude buyer -- is inching along
toward a tighter monetary policy. they see that to preserve the EU
as it stands, southern and far eastern Europe are under pressure
from the markets to reduce budget deficits. And, they are taking into
account continuing Euro weakness and US dollar strength as the
markets adjust for a more sluggish and fractious EU vs. the US.
The crack in the oil market has penalized sector investors, but it
will also work to reduce cyclical inflation pressure and enhance the
real wage in the US which are plus factors for the economy.
The weakness in the oil price has broken its uptrend off the early
2009 cyclical low and it has brought oil down to an important
support level. The price drop is leading to development of a sharp
short term oversold condition, which might well give players a
longside shot at moderate seasonal price strength starting late in
Right now the psychology for oil is not good what with the
realizations that Europe may grow more slowly and that China is
now snugging up on policy. We have to wait a bit on the EU, but I
doubt China is prepared to slam the door on growth. Given the
grand power of the central gov., China can play stop / go with
monetary policy far more freely than can governments in the
If you are like me, and drive and heat your home with oil, an
opportunity to hedge your cost with a long position in an oversold
oil market is worth keeping an eye on. Oil price chart.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!