Crude Oil: Are we headed to inflated 2008 levels?

The April 2011 WTI Crude oil contract opened last week at $90.04 and closed the week at $97.88. Crude hit a high last week of $103.41. With record supplies of crude in the United States why are we paying so much? Is it the fear of an oil stoppage from Libya? Actually Libya makes up only 5% of OPEC’s production. Saudi Arabia already said they would make up the difference, so where is the problem. Was the reported threat of the Suez Canal getting shut down real or simply uninformed speculation?

As oil rose to $147 per barrel in 2008, Americans were being told that the earth would run out of oil soon, peak oil. So exactly how did oil drop below $40? While demand may have dropped, did it drop so much to cause over $100 drop in price? Guess when OPEC’s production was at its highest? See the chart below. Oil companies at the time were reporting record quarterly earnings. Now there is another crisis in the Middle East. Time to push oil up as high as possible. Take a good look at the weekly chart below and you will see how the big money is trading this market. Oil companies (hedgers-commercials) in the oil market are at a 52-week net short low of -258,897 contracts.

Proceed to Page 2 for the latest COT data...

More disturbing to me is that looking at the Disaggregated COT report you will find that True Commercials are net short -217,532 contracts and Swap Dealers are net short (have not seen this before) -41,365 contracts. Remember in futures there must be buyers and sellers. You really need to understand what is happening. Could we see $147 this year? Anything is possible, and the buying and selling is there to push this market to where ever big money wants it. Is supply and demand really an issue? Or is it speculation on the possibility of a supply problem? You be the judge.

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Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...