Wednesday, June 29, 2011

Oil - part 1

I would like to discuss oil in 3-part post. My first post will concentrate on release of SPR last week. 2nd post will discuss the technical picture. And the third will discuss the oil derivative - CAD (Canadian Dollar).

So SPR is tapped for 60 mil barrels. Hurray, hurray! Folks, this is puny at best - 3 day US consumption. So what authorities did is spook the specs out for few days and added some confusion. Make no mistake about it - not gonna matter! Oil market is huge and 60 mil barrels is a small number to have any prolonged affect. If anything - authorities spooked stock markets around the world. Do they know something we don't? Is the slowdown worse than we think??

Do interventions like this work? NO. How about EUR/CHF (euro/swiss franc) intervention by SNB all the way down from 1.50?? Do you know how huge SNB losses are on that EUR/CHF long trade - disastrous in epic proportions, by what is considered as an astute and conservative central bank? North of $10 billion now and piling on as we speak. This just shows you that interventions do not work in huge and liquid markets. The only way oil will come down is if the world economy slows down more and oil demand wanes.

And quickly lets discuss the oil itself. A lot of it comes from OPEC (which deserves a post of its own, as I think its days are numbered), which is not going to bow to any pressure. Saudis can try to pump all they want, I seriously think they are close to full capacity already. I bet they pumped more as soon as Libya came off-line. But there is an issue with which oil is needed more. Libya has the most-demanded oil in terms of refining. I will not get into too many details here. Hard to replace their supply...

SPR release is foolish, irresponsible, and ill-timed. No war, no hurricane Katrina, no disaster. You get the idea...

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