Energy trading: Oil is still in charge
Today's Financial News - Posted May 20, 2009
Oil prices are on the rise, even as many analysts said it could not happen. With crude prices nearly twice they were at the start of the year, can the bulls remain in charge? A look at today’s inventory report helps answer the question.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is the basis of modern-day investing. Traders make money when the markets make a mistake. The less Wall Street knows or the more volatile the information, the more room for big profits.
There is no doubt the traders expecting crude demand to plummet and remain at low levels for months, if not years, were wrong. Over the last several weeks, the commodities market has made Wall Street pay for its mistakes.
In case you have not been paying attention, crude prices have quietly surged forward throughout the last month – out of the $40 range, out of the $50 range and now, thanks to today’s inventory report, steadily climbing through the $60 range.
Now trading at just over $61 per barrel, crude prices have nearly doubled over the last six months.
Now the question is will the bullishness continue?
You better believe it
For an answer, take a look at today’s inventory report from the Energy Department. While overall levels are more than 18% higher than they were this time last year, inventories dropped by a wider-than-expected level of 2.1 million barrels last week. Analysts calculated a decline of just 1.5 million barrels.
Gasoline inventories took a serious hit, declining by 4.3 million barrels, well below expectations of a decline of 1.7 million barrels. It is proof that a slowing economy is having a less-drastic impact on the nation’s oil addiction than predicted.
With the help of today’s news, proving demand remains high, the bulls will have little trouble adding a few more dollars on to the price of every barrel. With unrest in Nigeria continuing, a refinery fire adding supply risk and an equities market that is wearing the rosiest glasses I have ever seen, the bears are going to have a tough time convincing traders to see their side of the story.
My advice is to add to your position in the energy sector. Do it by looking at “smaller” domestic suppliers like Chesapeake Energy (NYSE:CHK), Anadarko Petroleum (NYSE:APC) or Occidental Petroleum (NYSE:OXY). It is still too risky to get involved in the high-risk marginal players.
Granted it is tough to go against the alternative energy craze, but once the wind and solar profits have all come and gone, the nation’s oil and natural gas industry will remain, pumping away.
Oil prices won’t be hitting $147 per barrel anytime soon, but traders are going to do their best to show the nation oil is still in charge.
Next Article: TFN Special Research Report: The Top 5 Oil Stocks for 2009
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