Why Oil Is Rallying, And Could Easily Go Back To $150
The Mad Hedge Fund Trader
Oct. 5, 2010
After a tumultuous 2009, oil has been one of the least volatile assets of 2010, confined to a tortuous $68-$88 range, frustrating momentum players to no end. How many city morgues are packed with the bodies of those who sold every dip and bought every rally, vainly hoping for a break out? By Friday, crude was down 3% on the year, virtually, the only hard asset showing a negative number this year.
Oil traded like it was on Ambien because it spent most of the year discounting a double dip recession. Bloated inventories encouraged hedge funds to build up substantial short positions. Some traders were targeting prices as low as $40.
After last week’s sudden burst, it now appears that this crucial commodity is stretching its muscles, limbering up, and getting ready for a serious move. The short position started to go badly wrong in early September. Forecast hurricanes failed to show. Wells in Nigeria, America’s third largest foreign supplier, started to explode again. Word has slowly been seeping out that the net effect of the BP oil spill, and the industry curbs that followed, will be a cut of one million barrels a day of Gulf production fairly soon. That is about 5% of the country’s total consumption.