Crude Oil Prices Per Barrel
The Smart Profits Report: Issue #390
Friday, January 26, 2007
Crude Oil Prices Per Barrel: Former Market Maker Reveals Where Oil Prices May Be HeadedBy Karim Rahemtulla
Investment Director, Mt. Vernon Research
If I had a dollar for every time I’ve been asked the following question from friends, colleagues, and subscribers over the past year or so, I’d be a rich fellow.
“Why don’t you own oil?”
It’s a fair question. As crude oil prices per barrel stampeded their way up to an all-time high of $78.40 on July 13, 2006, virtually everyone was piling into the sector, scrapping for profits. The mainstream financial media couldn’t stop breathlessly talking about how high prices were going to go. Goldman Sachs and others began to tout $100 oil.
About three months ago, our offices were inundated with calls about crude oil. Why weren’t we recommending it? People were seeing write-ups from everyone.
But we held off. Let me tell you why - and where we think crude oil prices per barrel are headed next…
A Direct Link To The NYMEX Trading Floor Market Maker
A few months ago, we launched the Triple-Zone Profits Trader (DEFT) - a commodity trading investment service headed by Smart Profits Report editor Lee Lowell. If you don’t already know, Lee is our resident commodity options and futures expert. Not only that… he’s spent six years as a market maker on the New York Mercantile Exchange (NYMEX) trading floor. Without doubt, Lee is “plugged in.”
I don’t want to spend time talking about how good Lee is at what he does. Rather, I want to show you.
In April 2006, Lee and I met at the Grand Cypress Hotel in Orlando to discuss how we should structure his new service for investors. At the time, oil prices were trading in the $60s and Lee was bullish.
Turns out he was right on the money. Within a couple of months, crude was preparing to break $70, on the way to $78. And today, Lee has an almost perfect track record in this volatile commodities market. So I called Lee and asked him about crude today. Since he has personal trading experience on the NYMEX floor, as well as the key contacts, why not put him on the spot?
A $24 Drop In 5 Months Per Barrel
Even amid all the geopolitical strife and war in the Middle East, and venomous rhetoric from Venezuelan leader Hugo Chavez, crude oil prices are not set in Saudi Arabia, Iraq, or Venezuela. They’re set on the floor of the NYMEX. This is where the buyers meet the sellers in the world of high finance. It’s where rumors are spread and debunked, where you have the best access to information, and where connections matter most.
The luxury for us is that Lee still has all that - and when we need to “plug in,” it’s just a phone call away.
He said he didn’t like the long side of crude any more. His contacts weren’t bullish and the charts didn’t look supportive. That was good enough for me - and that’s why we didn’t chase the market.
And it was the correct decision. Since its high of $78.40 in July, crude oil prices per barrel have slumped $24 to the current price around $54.30 (with a $7 drop occurring in 2007 alone). As Lee states, “That’s a major move. When I was a floor trader in the crude oil options pit, a move of $0.50 was considered a very busy day. Now, moves of $2 or more in crude oil prices per barrel are becoming the norm.”
So where does the market go from here?
Market Set Up For $50 Crude Oil Price Per Barrel
Crude oil prices per barrel have traded in a pretty solid uptrend since early 2002. And with the world still as thirsty as ever for oil, demand isn’t going to lessen too much anytime soon.
That said, however, Lee believes it’s the hedge funds that are the major controlling factor in today’s oil market. And with hundreds of millions of dollars at their disposal, it’s easy to see why. Collectively, they’ve added at least $20 to $30 to oil prices alone.
So when hedge funds and speculators move their money from the market, a big drop follows - as we’ve seen over the past few months. It’s a good way to explain the reason why, with the world beset by geopolitical strife and the Iraq war getting worse, crude oil prices per barrel have still dropped $24.
So how much farther could oil prices drop? I’ll let Lee tell you…
“Volatility has exploded over the last few weeks, and in the short term, I see $50 as a good resting place, based on the Fibonacci sequence of numbers. This is a technical analysis theory that states prices will often revert back to the 50% level of a major move, and since crude oil prices per barrel moved from roughly $20 to $80, a 50% retracement of that $60 move would take it back to the $50 level.”
My thanks to Lee for his insights today. For the record, while I’ve been avoiding oil for months, I am starting to warm up to the idea of energy investments for our portfolios - but not without applying one of our proprietary strategies to be certain that we don’t take needless risks.
Good trading,
Karim Rahemtulla
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Today’s Smart Profits Cribsheet
- While the fall in oil prices has been well documented, other commodities like natural gas and gold have recovered from a widespread sector plunge towards the end of 2006 - just as we predicted in a Smart Profits issue in September. Gold has risen from $600 then to $652 today, while natural gas has hauled itself back from its lowest point since February 2004 ($4.67) to $6.86 today. Click this link to find out which natural gas company and which industry is well-placed for commodity sector gains in Smart Profits #356, Commodities Trading: Looking For Profits Amid the Commodities Collapse.
- Get Rich With Options: Four Strategies Straight From The Exchange Floor: In addition to his oil analysis, Lee Lowell has been busy trading everything from natural gas to silver. In fact, he just bagged gains of 33% in 13 days on a February 2007 natural gas put option spread and 14% in 11 days on a March 2007 silver put option spread for subscribers to his DEFT trading service. His first book, Get Rich With Options: Four Strategies Straight From The Exchange Floor, has also just hit the newsstands. Giving you the in-depth insight and the rare expert advice that very few people are privy to, Lee reveals the four strategies that he personally uses to churn out profits for him in the options arena. And using real-life examples of actual trades and insider tips, Lee shows you how to use these techniques decisively for the fastest route to riches in the options trading game. Follow this link for more information.
- You may also want to check out a great article by Investment U Researcher Don Miller as he reviews the oil-buying strategy called Energy Mercantilism. Through this, producers and consumers bypass the marketplace altogether, and in turn greatly impacting the price of oil.
Related Articles:
- The Future of Crude Oil Prices: How a New Saudi Development is Bearish for Oil Prices
- Natural Gas Prices: The Natural Gas Market is Set to LEAP in the Months Ahead
- Crude Oil Prices: Here’s What An Industry Insider Says Is Next For The Runaway Oil Market
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