This Market is on Crazy Pills

[dan_s]

Day Traders have taken over the market.

$80 oil ain't that bad, especially since most of the world's oil is actually selling at close to $100/bbl. To get my Fair Value estimates down to the current share prices, I must take oil down to $60.bbl. For example, in my BEXP model I changed their realized oil price to $60 for Q4 and all of 2012. It lowered the "Fair Value" to $28.20/share. BEXP closed at $25.81 today.

No, I do not believe oil will drop to $60/bbl. In fact, I believe oil will flop around in the $80-$90 range through year-end. It may dip below this range but I believe it will bounce back quickly. I also believe that WTI will begin to work its way up to Brent in 2012 as the bottleneck at Cushing is resolved.

Brent closed over $103/bbl today.

Brent crude prices weren't taking as big of a hit as WTI, given that long-only funds have been liquidating their exposure to NYMEX WTI -- the price of which has been pressured by the supply glut at key oil trading hub Cushing, Okla. -- and ramping up their exposure to the ICE Brent market, which is more closely tied to the economics of the global marketplace.

"Liquidity is much higher on the ICE Brent market, so it makes sense for them to shift there," said Schork Report editor Stephen Schork. Meanwhile, "The NYMEX market is skewed, given the extent of the bottleneck in supply in the Cushing hub."

A caveat for Brent hopefuls though is that it's becoming too expensive.
"Refiners here in the U.S. and in Europe are under strain with margins -- oil relative to the product prices would appear to be too high. As such, once we get through this quarter, I would not be surprised to see corrective weakness in the Brent market," Schork warns.

Schork says WTI oil has found much support in the high $70 range. But if that support breaks -- expect a 50% or 62% retracements from $74 to $65.

A drop below $75 would begin to squeeze the profits of Canadian tar sands operators, he warns.

GRZ Energy trader Anthony Grisanti isn't expecting any upside for WTI for the rest of the year, predicting that they will be range bound between $80 to $90 through the fourth quarter.

[par_putt]

.....>>>the price of which has been pressured by the supply glut at key oil trading hub Cushing, Okla. -- >>>>

I continue to read that the storage in Cushing is dropping. Which is it..? Who do you believe??""

Cushing Continues Decline
Stocks down from 32.0 million barrels to 30.9 million barrels this week, or 157,000 barrels per day. That's a substantial acceleration of the recent trend.""

[dan_s]

Efforts are being made to reduce the inventory at Cushing. It should be resolved in 2012. Raymond James recently wrote in their "Energy Stat of the Week" that the large differential with Brent should be narrowing soon. Lots of oil is being trucked to Tulsa and placed on barges to the Gulf Coast market. More rail takeaway capacity is being added.

If Obama will approve the Keystone XL pipeline the problem will be solved. Plus, the pipeline project will quickly add 20,000 new high paying jobs directly and up to 100,000 more nationwide. If our government was not so anti-oil this project would be underway today.