Formula for success: rise early, work hard, strike oil.- J. Paul Getty
As we all know by now our friends at Goldman Sachs $GS, made the call of the decade when they went bearish on commodities a few weeks ago. Oil did go lower off that call ,but then went back up and broke to new 52 week highs about two weeks later.
Energy has been a phenomenal space to be for months and we did well with the trade. I will take luck over smart any day and we were entirely out of energy before the trap door opened.
I still love the space and although the bears may be pressing shorts here I wouldn’t call the morgue yet. It may be their turn at bat for another week or longer, but I don’t see crude going significantly lower in my lifetime. The short term range will probably be $ 90 to $110 and longer term probably $ 80 to $ 150. If someone farts in the Straits of Hormuz then it’s just over and with the Mideast falling into insanity on a daily basis, nothing is out of the question.
Goldman said on Friday oil could surpass recent highs by 2012 due to supply tightness. They will be long again at some point and you will be the last to know.
Here is a blip from Goldman’s comment on Friday.
“It is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year,” Goldman Sachs’ analysts said in a research note. “We continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market,” it said.
They attributed the sell off in oil to bad economic news and feel much of the risk premium has been removed from oil, but warn that further poor economic data would be the one dynamic that could move price lower.
The one possible ceiling on oil though, is a change in the margin requirement. Keep in mind that the CME raised margin requirements four times and may be scheduling one for today. If the Nymex (owned by CME) takes the same tact on the next oil spike, massive upside could be muted to a degree. I say screw em’ all. Let price do its thing.
I remember when the trolls at the SEC initiated a “no short rule” during the crash, Guess what? Prices imploded further. Same with the “no short” list on the banks,$ XLF broke to new lows anyway. The market is like a teenager, at the end of the day it’s going to find a way to do what it wants anyway.
$OXY is my favorite name in the space and I love my $ERX when the energy bulls come calling. Good trading and have a great week
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