Energy Prospectus

I was interviewed last week by a Midland reporter. Here is a link to her report.

http://www.investorvillage.com/smbd.asp ... d=15184711

CL closed with a very bullish candlestick and very high volume--at least a temp bottom.

As I said in the interview, the first step is to confirm the bottom for WTI. The IEA's Oil Market Report comes out on Wednesday, August 12. If IEA will confirm the big increase in demand which I have seen in several articles, that will help a lot. Also on Wednesday, another big drop in U.S. crude oil in storage would help a lot.

What today confirms for me is that there is a whole lot of money itching to get back into this sector.

Raymond James issued a very gloomy oil outlook report based upon ramping Saudi and Iraqi production. Don't think the U.S. Can fall enough to offset their increases if they are right and the Mideast keep the taps wide open.

Oil prices rose today on news that Chinese crude imports reached record highs in July, according to Bloomberg. The monthly record was driven by small private refineries buying crude, according to preliminary data from the General Administration of Customs.

"A major reason for the selloff in oil has been concern about Chinese demand," Price Futures Group Senior Market Analyst Phil Flynn told Bloomberg. "It's clear from this data the demand hasn't crashed."

It seems to me that Raymond James and a lot of other analysts expect the U.S. shale players to solve this problem of supply/demand. Very few analysts seem to notice that demand is on the rise. Low fuel prices do increase demand and they increase it a lot. I think IEA will report on Wednesday that they expect more than 1.5 million barrel per day increase in demand for refined products from Q2 to Q4.

I also think there is a good chance that Saudi Arabia cuts production. Peter Cardillo, Chief Market Economist for Rockwell Global Capital, is on the same page as Raymond James & Associates. In an interview with Yahoo Finance, he said he expects to see a price range between $50 and $55. Now read his "However"....

However, rumors out of Saudi Arabia indicate the world’s top oil exporting country may be reconsidering its approach. “Even though Saudi Arabia started this, the OPEC nations are hurting, including Saudi Arabia,” said Cardillo. “From a political standpoint, that could be very dangerous.”

Bloomberg reported that the OPEC’s de facto leader has been losing roughly $10 billion per month since oil prices went south last fall. An August 6 report from Ben Sharples on Bloomberg’s Oil Buyer’s Guide indicates the Saudis have steadily been losing its China market share to Russia for the last year. Such bearish news for the Saudis were followed by a report from The Wall Street Journal in late July, citing sources that the country plans on scaling back production after the summer. The curtailments could come as soon as September and include 0.2 to 0.3 MMBOPD of production, accounting for about 2.3% of its record-high volumes in June.

Even a small reduction in Saudi Arabia's production will draw attention from the speculators that set oil prices.