Bullish DOE Crude Oil Inventories Numbers Didn't Really Help WTI

[MichelGJulien 10]

You know that a market is over extended to the upside when bullish news tend to produce the opposite reaction that would "normally" be expected. This morning the DOE data came out at -2.812MM (draws), when the market expected -1.5MM, compared to last week +1.32MM. Inventories are slowly coming down so in theory, this should be bullish for WTI. But according to the COT, there are so many large speculators still long that, like I said yesterday, longs are taking advantage of higher prices to unload as many contracts as possible. That's why I believe we will not see 110, at least not before this imbalance between longs and shorts reach some sort of equilibrium. Also, in my opinion, this type of environment will produce a lot of choppy market action over the next few days. This will not be a market for the faint of heart for sure.

 

Looks like we're about to fill the August 1 gap at 107.87

 

Technically, the market opened at 106.38 i.e. within yesterday's range but outside of value area. Yesterday's gap stood at 106.77 and was filled right after the DOE inventories data release. The initial balance came in at 55 ticks this morning, i.e. 32% below its 10-day average. This result prompted me to tweet: "More volatility to come later maybe". And boy did we get some more after the DOE release. Typically, I do not like to get into a position before the DOE data. I had bad experiences in the past so now my motto is: "better safe than sorry". I know it's boring. But that's the way trading goes sometimes. It's not always rainbows and unicorns. So, to recap, besides all the excitement, we have been basically range trading between 105 and 107 since Sunday evening. A confirmed breakout outside this range will be significant and should be followed, not faded. In the meantime, my charts are kind of messy.

 

I took 1 trade today:

 

1. Long 106.89 at 14:05, exit 107.00 at 14:10 for a +11 ticks profit. Result: +11 ticks today.

 

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[Ammeo 10]

""Oil is absolutely certain to become incredibly short in supply and very high priced. The imported oil is not your enemy, it's your friend...

t's going to get way worse later ...

The oil in the ground that you're not producing is a national treasure ... It's not at all clear that there's any substitute [for hydrocarbons].""""

 

These are the words of Berkshire Hathaway's eighty-eight year old vice-chairman Charlie Munger. He obviously feels oil prices will keep going up and supply will be short of demand. Even with all the data that has made the peak oil theory look bad, it seems as though agreeing with Munger is the most rational thing to do now.

 

Besides, there is always the geo-political risk that has to be accounted for when pricing oil as a commodity. And then the fact that no matter how much oil is produced, it is the marginal cost of production that ultimately determines the oil price per barrel. This marginal cost has been on the rise and it has always sent the price of crude oil up.