Post by Savant on Sept 29, 2004 9:51:46 GMT -5
Perfect Storm Oil Price Spike Scenario Plays Out
Two weeks ago, our title headline read: Market in Pause ~ Pullback Mode - Having been unequivocally bullish on the stockmarket since mid-August, heralded by earlier headline title: Market Strength Defies Gravity was basically the theme for the next few weeks.
Curiously, almost exactly a month later, the market began to stumble, this time heralded by our Market in Pause ~ Pullback Mode.
In fact we recounted that by 1300 Monday Sept 13 the market was beginning to show signs of tiredness and shortly thereafter pulled back fairly sharply. This turned out to be the beginning of a fairly significant pullback that took the Dow back about 350 plus points to test the 10,000 level yet again, both on Monday and yesterday, took the S&P back some 30 points to test the 1,100 level and the Nasdaq back to 1,850 as NYMEX Crude Oil surged back towards $50 per barrel, finally breaching that level yesterday for the first time in history.
Having had to endure a number of Hurricanes, the severity of Ivan gave us concern that disruptions to the Gulf of Mexico production, accounting for some 25% of US consumption would likely have a severe impact on prices akin to a "Perfect Storm Scenario" and we wrote that Tuesday that trading could be influenced to some extent by the onslaught of Hurricane Ivan and as we suggested yesterday might happen, Energy markets snapped back and closed sharply higher and expected to trade sharply higher. We went on to say that one of the most amazing things about markets is their ability to anticipate events, sometimes far into the future. The first run-up in Oil towards $50 happened on a background of rumor and Energy innuendo and fell back equally sharply, also on no appreciable news.
We continued to pose the idea as we suggested a while back, that some reason might emerge that would justify the price run-up that took place and perhaps over those next few days, on the heels of Ivan, we might experience the "Perfect Storm" conditions that could produce a secondary upward spike in of significant proportions in Oil related markets.
We then went on to report that this so called spike had already begun to take shape and obviously could be significantly exacerbated, should Ivan inflict severe damage on some of the platforms and other facilities that essentially produce about 25% of US Energy needs. We also reported In addition to that, came news overnight of the very sharp 40% increase in Oil imports by China and added to that some increasingly aggressive sabotage aimed at disrupting Iraq's Oil exports and then we laid out our "Perfect Storm Scenario".
For the next 10 trading sessions, West Texas Crude Oil has closed higher each and every day right up until yesterday, Tuesday 28th.
How much higher will it go? That depends on how much further inventories are likely to be drawn down as will be reported later today. Trading is likely to be volatile. Normally markets that run 10 days straight tend to end either on the 11th day or sometimes go 13 or 14 days. Very often thereafter, the trend can reverse quite dramatically and sometimes they can give back all their gains and more...
Since there is a potential glut in the making over the next few months as tankers are able to offload their goods and extra oil supplies are added to the market, there is a chance that the markets could anticipate this ahead of the news and might even react negatively to news, even if the inventory levels come in significantly lower than expected. There is a chance Oil could spike higher initially, or it may just head south. It is a very tough call.
As a general rule, it is a bad idea to attempt to sell short any instrument that is relentlessly setting new contract highs, let alone the whole energy sector. It usually implies continued higher prices lie ahead and so far that has been the case.
As we suggested two weeks ago: So for now we are in a secondary spiking mode that once again will have to exhaust itself, but this time an excellent opportunity to sell short may be presented, especially if things get out of hand and we get back in a secondary parabolic mode as happened back in August. That has been happening in a secondary blowoff mode that looks close to exhaustion.
Seasonally, the time to be shorting the Energy markets should be more attractive going into the fall and months end could be likely be the death knell of the Energy Sector, that looks like it is setting up for a major reversal either side of month's end, but which side...?
Have a great Wednesday
Stay safe
Savant
Two weeks ago, our title headline read: Market in Pause ~ Pullback Mode - Having been unequivocally bullish on the stockmarket since mid-August, heralded by earlier headline title: Market Strength Defies Gravity was basically the theme for the next few weeks.
Curiously, almost exactly a month later, the market began to stumble, this time heralded by our Market in Pause ~ Pullback Mode.
In fact we recounted that by 1300 Monday Sept 13 the market was beginning to show signs of tiredness and shortly thereafter pulled back fairly sharply. This turned out to be the beginning of a fairly significant pullback that took the Dow back about 350 plus points to test the 10,000 level yet again, both on Monday and yesterday, took the S&P back some 30 points to test the 1,100 level and the Nasdaq back to 1,850 as NYMEX Crude Oil surged back towards $50 per barrel, finally breaching that level yesterday for the first time in history.
Having had to endure a number of Hurricanes, the severity of Ivan gave us concern that disruptions to the Gulf of Mexico production, accounting for some 25% of US consumption would likely have a severe impact on prices akin to a "Perfect Storm Scenario" and we wrote that Tuesday that trading could be influenced to some extent by the onslaught of Hurricane Ivan and as we suggested yesterday might happen, Energy markets snapped back and closed sharply higher and expected to trade sharply higher. We went on to say that one of the most amazing things about markets is their ability to anticipate events, sometimes far into the future. The first run-up in Oil towards $50 happened on a background of rumor and Energy innuendo and fell back equally sharply, also on no appreciable news.
We continued to pose the idea as we suggested a while back, that some reason might emerge that would justify the price run-up that took place and perhaps over those next few days, on the heels of Ivan, we might experience the "Perfect Storm" conditions that could produce a secondary upward spike in of significant proportions in Oil related markets.
We then went on to report that this so called spike had already begun to take shape and obviously could be significantly exacerbated, should Ivan inflict severe damage on some of the platforms and other facilities that essentially produce about 25% of US Energy needs. We also reported In addition to that, came news overnight of the very sharp 40% increase in Oil imports by China and added to that some increasingly aggressive sabotage aimed at disrupting Iraq's Oil exports and then we laid out our "Perfect Storm Scenario".
For the next 10 trading sessions, West Texas Crude Oil has closed higher each and every day right up until yesterday, Tuesday 28th.
How much higher will it go? That depends on how much further inventories are likely to be drawn down as will be reported later today. Trading is likely to be volatile. Normally markets that run 10 days straight tend to end either on the 11th day or sometimes go 13 or 14 days. Very often thereafter, the trend can reverse quite dramatically and sometimes they can give back all their gains and more...
Since there is a potential glut in the making over the next few months as tankers are able to offload their goods and extra oil supplies are added to the market, there is a chance that the markets could anticipate this ahead of the news and might even react negatively to news, even if the inventory levels come in significantly lower than expected. There is a chance Oil could spike higher initially, or it may just head south. It is a very tough call.
As a general rule, it is a bad idea to attempt to sell short any instrument that is relentlessly setting new contract highs, let alone the whole energy sector. It usually implies continued higher prices lie ahead and so far that has been the case.
As we suggested two weeks ago: So for now we are in a secondary spiking mode that once again will have to exhaust itself, but this time an excellent opportunity to sell short may be presented, especially if things get out of hand and we get back in a secondary parabolic mode as happened back in August. That has been happening in a secondary blowoff mode that looks close to exhaustion.
Seasonally, the time to be shorting the Energy markets should be more attractive going into the fall and months end could be likely be the death knell of the Energy Sector, that looks like it is setting up for a major reversal either side of month's end, but which side...?
Have a great Wednesday
Stay safe
Savant
