I was happy to be on with Jeff again on Yahoo Finance on May 9, 2012 when they wrote, “As recently as last month, ever higher crude oil prices and $5 a gallon gas were still regarded as inevitable. Naturally, much of the blame was placed at the foot of speculators, or "gamblers," propping up the prices for their greedy and otherwise nefarious purposes. Since then, gas prices have dropped to levels much lower than they were a year ago and WTI has fallen off a cliff, falling over 10% in May alone. How could the speculators have allowed for such drop? Breakout asked Fox Business News contributor Phil Flynn, also a senior energy analyst at PFG Best.
"I'm shocked!" shouts Flynn from the floor of the CME. According to Flynn, most of the commodity funds (read: Speculators) were caught heavily long in oil when the market turned, causing them massive losses. "I'll tell you why: It's because they never controlled the price in the first place!"
Flynn takes the gamblers' reversal of fortune as, "more proof that whenever somebody blames the speculators for the prices [of energy], they really don't know what they're talking about." Assuming the speculators aren't about to get credit for any decline in crude prices, Flynn says the fundamentals are to blame for the recent sharp decline. Newly Socialist France and the lunacy in Greece are creating uncertainty that weakens demand. In combination with the glut of oil, stockpiled when a military stand-off with Iran seemed inevitable, the price of crude and other forms of energy are dropping due to the laws of economics. Unless Europe is "solved," which is unlikely if not impossible, or a hot war breaks out in the Middle East, Flynn says "sell the rallies" is the dominant strategy. To him the only real question is whether or not a trader should go so far as to short crude or natural gas. With the fast drop below $100 a barrel in WTI crude, Flynn says its new price range is likely to be somewhere between $90 and $95 a barrel, causing him to "be a little careful" going short. For every buyer there's a seller, meaning someone is most likely making money off the drop in energy prices. Whether it's a new breed of speculators driving it lower or the obviously bearish fundamentals is beside the point for a trade. Until further notice, the best way to play crude has gone from "buy the dips" to "sell the rips."
As recently as last Friday I told Tracy Burns and Ashley Webster on the Fox Business Network that oil had not bottomed and was probably on its way to $90. We are already close!