Energy Prospectus

My take is that oil is going to flop around in the $95 to $105 range for awhile. Over the next 18-months I believe we could see a new high, over $150/bbl, especially if the Libyan oil stays off the market. Actually, it would be much better for all of us if the oil prices stabilized around $100/bbl. - Dan
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The American Petroleum Institute said late Tuesday (May 10) that crude inventories rose 2.9 million barrels last week, more than the increase of 1.6 million barrels predicted by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.

However, inventories of gasoline, which have dropped 11 straight weeks, fell by 295,000 barrels last week, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data -- the market benchmark -- later Wednesday.

In the meantime, its downward revision of estimates for oil consumption weighed on markets.

The EIA now expects global demand for oil to grow by 1.4 million barrels a day in 2011, about 120,000 barrels a day less that it forecast a month ago.

The forecast "has temporarily stopped the price recovery," said a report from Commerzbank in Frankfurt.

Oil prices have swung sharply since the beginning of May, dropping 15 percent last week before rebounding about 6 percent so far this week. Investor concern that flooding on the Mississippi River could damage refineries and disrupt fuel shipments helped push crude higher Tuesday.

The flooding is the latest in a series of events that have rocked oil markets this year, including political uprisings throughout North Africa and the Middle East and the violent conflict in Libya.

"It has been a rare and strange year since the first ripple of discontent in Tunisia," Cameron Hanover said in a report. "And events that have happened since have only magnified the volatility of a nervous and jittery market."

From the IV board.
Msg 71755 of 71763 at 5/11/2011 10:55:37 PM by
coolreit

Why the move to hike margins sets crude up for a big spike

Why the move to hike margins sets crude up for a big spike
(thx to Rotair69):



Daniel Dicker
Tuesday, May 10, 2011
New York — The strategy for raising margin requirements for crude oil ought to work for a while, chasing out some retail money and steadying crude’s price. But it also sets the market up for a big spike upwards after this round of margin increases are over and therefore creates a decent opportunity for targeting oil stocks in the interim.

After having had such a significant effect in silver last week, Chicago Mercantile Exchange officials decided to avoid the pressures that are sure to come from Washington and try to apply the same margin increases to oil in the hope of moderating the retail speculation and perhaps the price.

The strategy ought to work for a while, chasing out some retail money and steadying crude’s price. But it also sets the market up for a big spike upwards after this round of margin increases are over and therefore creates a decent opportunity for targeting oil stocks in the interim.

The bottom line is that crude oil is not silver, and the amount of retail money – the “doctors of Dubuque” – that is such a significant part of the silver trade is not such a significant part of oil and not as sensitive to margin requirements.

That doesn’t mean that no retail customers are engaged in oil trade and that a margin increase, or a series of them, won’t have an effect and stabilize prices for a while. But the biggest players in oil, the algorithmic traders, the hedge funds and proprietary bank desks have access to close to zero interest rate money and will be mostly unaffected by any margin increases that the exchange will apply. You can look for the increases in margins to decrease speculation in oil prices in only the most limited way.

But let’s not get ahead of ourselves. The margin increase announced late Monday by the CME will take the cost for holding a contract of crude oil futures to $8,438 from $6,750, an increase of 25 per cent. We should not expect this to be the last increase either: Silver’s margin increases came over the course of a week and dropped the leverage in the contract from about 17 to 1 to around 8 to 1.

With crude oil leverage before Monday hovering around 15 to 1, the equivalent increase to get leverage to where silver is today would put the per-contract margin at closer to $12,500. We should expect a series of margin increases on oil until we reach something closer to this number.

But how much money will these margin increases really shake out? It will only remove the most sensitive positions to increased capital requirements, taking out at least some of the day renters of commodity positions, who have certainly added quite a bit to the volatility and straight-up, fast-down moves in the price of oil. Removing this volatility, even if it does very little ultimately to the prices we see, are still a very useful result worth pursuing.

So, how to play it? We need to look for the knee-jerk move of oil prices downward to put some pressure on some of the oil stocks for which we have targeted prices. I’ve given those out in previous columns but will do so again: The big integrated oil stocks I like include Exxon Mobil , which I would love to add to at around $82 (U.S.) a share, and Chevron at around $101.50. Oil service will find value in a downdraft, and my favourites include Weatherford under $20 a share and Transocean at $66. Expect a moderating of oil prices along with the planned increases in margins that are sure to come from the CME in the coming weeks. Take advantage of this short respite to position yourself well in some quality oil stocks.

Dan Dicker is a senior contributor to TheStreet.com and has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser.

At the time of publication, Dicker was long Exxon-Mobil, Weatherford and Transocean.

From Tudor Pickering Holt this morning:
Energy stocks (OIH $147, E&P $635, XOI $1299, XNG $669) – Violent and painful, probably feels more so because of commodity price decline / volatility. Current pullback really just approaching average in historical perspective…oil service and E&P pullbacks both with a historical norm of ~13% and E&P now -9% / OIH -11% since late March. Low 20% pullbacks are the extremes within an upcycle (OIH -32% post-Macondo last year is the exception). Stocks starting to get cheap enough, build your shopping lists. Early look on commodities says today likely provides opportunity to start buying.