They have grown accustomed to the price. It almost makes the day begin. They have grown accustomed the oil tune, the rallies night and noon, the ups the downs and the smiles and the frowns. OPEC has grown accustomed to the price.
And that is just not right. There are probably 2 million reasons why OPEC should not cut oil production at their emergency meeting this week but that probably will not stop them. While it has not been decided, it sounds like OPEC will settle on a one million barrel a day production cut and hint that if the market does not respond, they will hit us with another 1 million barrel output cut in December.
Yet I think it is kind of funny that OPEC wants to defend the 70 to 80 dollar a barrel range because when the price first hit these levels they said the price was too high. Yes, it was too high and those rotten, evil speculators were driving the price. Oh sure, they still accepted the higher price but it was the speculators that ultimately drove the price for their own personal gain. Shameful! Now the cartel is addicted to these prices that they said made no sense and now are desperately trying to defend them.
Of course if a cut is going to be successful guess who is going to have to do the dirty work. You guessed it, Saudi Arabia. Oh sure it is Venezuela and Iran that are always screaming the loudest for a production cut as long as it's not them that has to do the cutting. Venezuela, because of the politicization of the oil industry by Venezuelan President Hugo Chavez, can’t even pump quota anyway. Iran is starting to find out just how expensive a clandestine nuclear weapons program can be so it will have to continue to pump oil in order to keep the economy from falling apart. That means it is possible that if the world’s economies do not bounce back and bail the oil producers out with a rebound in demand,then we may see more internal conflict in the cartel.
This would not be the first time. Falling oil prices have caused friction in the cartel before and despite talk of solidarity, if oil demand starts falling OPEC members have tendency to cheat on production quotas and turn on each other and will jump like rats off a sinking ship.
Still all the work the world central banks have done may save OPEC as long as their cuts don’t inflict enough damage to the world economy to keep the oil market and the rats afloat.
It looks as though that OPEC might be able to drive oil as high as the $78 a barrel area but with declining demand a drive over $80 would be hard to maintain. Unless we get help from a robust recovery or a weather event. Long term oil is headed to $50 but with the swings we could see sizeable upswings along the way. Day traders and swing traders may be long while long-term position traders will stay short. Volatility will give us good opportunities both ways. If you cannot decide how to play it just call or email me.
The bright spot is falling gas prices that I had predicted would fall below $3 a gallon national average retail. The next target is $2.70 retail as long as oil continues to keep trending down.
We're short November crude from apprx 10800 - lower stop to 8100!!!! If not stopped out, roll to December crude oil on the close.
Buy December heating oil at 20500 - stop 19900.
Sell Dec RBOB at 19100 - stop 20500.
We're long November natural gas from apprx 670 - stop 673!
Have a GREAT day!
