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Monday, January 7, 2008

$100 Oil? $200 Oil!

Oil $200 Options Rise 10-Fold in Bet on Higher Crude (Update2): “The fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of the year.

Options to buy oil for $200 on the New York Mercantile Exchange rose 10-fold in the past two months to 5,533 contracts, a record increase for any similar period. The contracts, the cheapest way to speculate in energy markets, appreciated 36 percent since early December as crude futures reached a record $100.09 on Jan. 3.”

While that may indeed occur, I believe it would take a geopolitical event to act as a catalyst now. The economic slowdown in the US and Europe can no longer be denied or glossed over. The only thing left to debate is the severity of the slowdown. Arguments now revolve around how long the recession will take and how deep it will cut. This will ultimately adversely affect the price of all commodities including crude.

When oil tagged $100 it was less than enthusiastically. It actually took several tries and quite some time intraday. $100 also did not suck in any new buyers. I’m short @ $99.50 with a tight stop. My first profit target is around $92.50 and then my second around $90. A pullback even to $90 would not dent the long run Bulltrend.

The MACD did not confirm the move to $100 and prices are now overbought.

Oil Falls on Forecast of Record-High Temperatures in East U.S.: “Crude oil fell for a third day on forecasts for temperatures near record highs for this time of year in the eastern U.S., cutting demand for heating fuel.

Temperatures may be as much as 30 degrees Fahrenheit above normal from the Great Lakes to the Atlantic coast through Jan. 9, according to forecaster Accuweather. Oil fell more than $1 a barrel on Jan. 4 on concern that energy demand will slow after U.S. unemployment rose to a two-year high.”

This warm spell also helps.

“Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Jan. 1, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 87,046 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 34,199 contracts, or 65 percent, from a week earlier.”

Yet another reason to go the other way. When oil hit $100 it didn’t unleash a short covering burst and it didn’t suck in new longs because the shorts aren’t in big positions yet and the longs looked maxed out.