Oil Price

As anticipated in the 9/11 post on the oil price, a period of normal seasonal weakness is
underway. Without a surprise disruption, oil can remain in a seasonal downtrend right on
through the end of Feb. 2014 that could, under normal seasonal conditions, take the price
down to the $85 - 90 bl. area. Despite sluggish global economic demand over the past two
years, oil had a very strong surge over the 15 month period starting in mid -2012 and
recently ended with crude topping out over $112 bl. I think the main reason was the very
large QE program from the Fed aided by easy money from other quarters. Relative to basic
supply / demand conditions, this was a speculative but profitable run. WTIC Crude Chart

The price did fall to cyclical trend support this week and is around the 200 day m/a support
level as well. It is headed to an oversold on RSI, so may be there can be a little bounce, but
oil is far from the sorts of deep oversold readings evident in recent years.

The internals of the futures market are not bullish now. The big petro industry hedgers have
deep short positions while the large traders -- who are often wrong when positions are
outsized -- continue to maintain very large long positions. My interpretation here is that
commercial guys are looking at supply vs. demand while the big financial players are
using the global easy money background to speculate on eventual and substantially faster
economic growth. Crude Contract When the crude supply / demand picture stabilizes and
actually begins to firm, you can expect the petro guys to begin slashing the short side of the
trade.