The oil price remains in a cyclical bull market. It must crack $90 on the way down to threaten the
trend. With the initial northern hemisphere gasoline build winding up, oil has entered a traditional
weak seasonal period that could run into July. With the production halts in Libya and unrest in the
middle east, oil went into a speculative blow-off starting in 2/11 from $85 bl. and running up to
around $115 earlier this week. It had become dramatically overbought and was just $5 shy of
entering another price bubble. When crude hit my 2011 target of $110 bl., I cleaned out all of my
petro longs around 4/7 (Oil Price -- Thanks For The Memories).
The big run up in the oil price since mid-2010 was no doubt in part prompted by the announcement
of the Fed's QE 2 program. Since QE 2 ends 6/30 and there is no QE 3 in sight for now, oil may
have to trade more rigorously with industry fundamentals for a while. With indications of a slowing
of global economic growth in evidence, and with now longstanding outsized carry stocks of crude
on hand, one cannot discount further price weakness over the current seasonally slow period.
Given the volatility of the oil price, it would be well in character for oil to fall to as low as
$85 bl. over the Jun. - Jul. '11 period. Not even a mild reach. The $85 bl. is just the merest of
guesses. I no longer have shorts in the petro sector, and plan to bide my time to see if there may
be another decent long side trade down the road.
Oil Price
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