Crude Oil: Which side of the next bullet do you want to be on?
By Adam Lass
In this article
Crude oil futures are down approximately $1 as Topical Storm Gonu misses the Gulf of Oman.
NOAA predicts that as many as 33 named storms for the Atlantic and Eastern Pacific this season.
The discount on September XLE contracts is disappearing quickly
Crude Oil: Which side of the next bullet do you want to be on?
Indianapolis dentist Richard J. Gatling was not the first guy to try and fling enormous amounts of lead and steel at living bodies. Prior to the patenting of his hand-cranked in 1862, such varied luminaries as Da Vinci, Puckle, Billinghurst, Ripley and Ager each took a stab at “coffee mills” that delivered death wholesale via rotating blue steel barrels.
Those who have faced such withering firepower have likened it to a hailstorm of yellow jackets flying past ones head. Or so they say. There are precious few who have survived long enough to be quoted in memoirs.
This is a sensation the folks who work in the global oil industry find quite familiar. Last week, a bullet named Tropical Storm Barry turned north at the last minute, sparing the Gulf of Mexico and instead dropping much- needed rain on a certain market analyst's lawn in rural Maryland.
This week another bullet whizzed right past it. A massive storm named “Cyclone Gonu” was slated to rip through the Straits of Hormuz (or major oil shipping bottleneck) before slamming into the major oil installations in the Gulf of Oman.
In the end, it too mostly missed, causing little more than a three-day delay in the endless roundelay of supertankers steaming between the Middle East and the stateside terminals that feed the ravenous maw of the U.S. energy consumers.
As a result, energy prices are “down” today. At least that's what the usual reliable sources of spin would have us believe. The AP, for instance, is promulgating “Oil price drop amid profit-taking” and “Supply disruption fears fade as cyclone spares Mideast oil facilities” across the Web.
If one cared to ignore the hyperbole and instead quantify that price drop, a quick perusal of NYMEX's current trading session shows that front-month contracts are indeed down some 89 cents. That means that crude can now be locked in for a mere $66.06 a barrel.
There can be no denying that “bullet-wise,” this is an improvement over 2005, when some 11 storms roared through our very own aqueous “oil patch,” driving crude at the Oklahoma terminal to $68.47 by late summer. Last year was relatively gentle, with only one named storm raking through the Gulf of Mexico. However, unceasing demand and even the mere intimation of shortages drove prices up to the mid-$70s all summer.
This year, the slide-rule types at NOAA are calling for 17 or so major Atlantic storms that could head across Florida for Texas, and 16 eastern Pacific storms that could back up tanker traffic or wreak havoc on Middle East production.
If they want to call this an “oil low,” well I say let them. And I say that you should buy low like crazy. Do I know for a fact that oil will spike again by late summer? Naaah. But that's a lot of bullets left in the hopper of God's own Gatling gun, folks. It's a pretty good bet that one or two are going to hit a pretty soft target.
A couple of good choices remain on the board. However, if you want to keep it straightforward, just add more XLE September call options to your portfolio (but don't dither: my ticker shows that discount withering quickly).
***
Adam Lass is the founder and manager of the WaveStrength Group, and is a contributing editor for Taipan Financial News. As the creator of WaveStrength's proprietary analysis system, Adam's expertise has shaped a franchise of successful investment newsletters and services, including WaveStrength Options Weekly and WaveStrength Apex.
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Related Resources
NYMEX: Light Sweet Crude Oil 6/8/2007 Session Overview
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NOAA: 2007 Tropical Eastern North Pacific Hurricane Outlook