Interesting Week for Oil...This Time, I'm Playing for Real

Oil prices snuck higher today, but the real action should be forthcoming.

OPEC begins meeting tomorrow, and the usual troublemakers (Venezuela, Iran) are looking to milk some more money from their barrels. The cool, calm, and in-control Saudis will be expected to propose holding production steady. As oil rose exponentially earlier this summer, Saudi economists and oil ministers affirmed that they believed that $80-100 was a good price for oil, but as barrels begin to approach that range, they too may step up the rhetoric a little bit. Countries like Venezuela and Iran have called oil too cheap, but the Saudis control enough of OPEC production to really be the deciding party.

Though any big change in production is unlikely to occur, the degree of rhetoric may have some influence on market movements going forward starting tomorrow.

And as news outlets have informed you, there's another hurricane brewing in the Atlantic - Ike. Ike just crossed Cuba and weakened, and it will cross again, but at some point it will enter the gulf and (supposedly) begin to strengthen. Right now, the track takes Ike into the middle of Texas, a little south of Houston. If this forecast proves accurate, then oil and gas production will be disrupted.

Wednesday is the weekly inventory report, and the numbers will be a little funny due to our ol' pal Gustav. However, Gustav didn't affect production or refining to the extent that was originally expected (hence the big drop in energy prices after my post about it), so the numbers may be bearish.

With my funds, I took a long position via my favorite vehicle - Conoco Calls. Unfortunately for me, Conoco announced a big, expensive parternership dealing with Liquified Natural Gas in Australia last night, so COP shares fell while those of other oil companies rose today.

Last time I was dead wrong; Gustav was a dud (relatively speaking - unfortunately, peoples in ocean countries beared the brunt of the once-powerful storm). This time, multiple events will be in play. I'm taking the contrarian stance - it's in my nature, for better or worse - after energy prices and related shares have fallen dramatically over the past two months. A quick pop tomorrow, Wednesday, or anytime soon, and I'm out - I'm still not convinced that oil's true value is $108/barrel.



To follow up:

As oil shares crashed on Tuesday, I bought shares of COP around $70 and Marathon Oil (MRO) Around $41 as long-term purchases. It looks like crude and oil equities will open lower today, but oil companies are looking dirty cheap.

Shoulda, Woulda, Coulda, Gone Long Energy

In light of Gustav's increasing strength and imminent re-destruction of Louisiana coastline, I wish I would have gone long energy before the close on Friday.

I'd be absolutely shocked if oil and natural gas prices don't rocket upward by at least 5% during Asian trading tonight. Gustav has shut down the majority of energy production in the Gulf and a significant portion of refining capability on land.

Refining capability had been underutilized during the previous weeks leading up to the storm, so refineries not affected by the storm should be able to maximize production (if they want to) to compensate for shut-downs. The US Department of Energy plans to release oil from reserves if it is deemed necessary; so there should be no lines at the pumps next week.

My instincts say that futures will jump and oil company equity will drop Monday, so long both USO and DUG would have been a good trade. Higher prices don't help companies who are shutting down production and are enduring damage to their rigs, while the Saudis will reap higher prices for the oil they are pumping.

Thankfully I don't do much driving while here at school, but gas prices should surely be higher in the coming weeks and months, even if only due to the fear factor. The extent of Gustav's disruption and damage waits to be seen. I sympathize for lives and property in the path of the storm, and hope that the early evacuations minimize damage.

A Crucial Side Note: Multiple democratic pundits, from position-holders to the fat, shameless Michael Moore, have called Hurricane Gustav a "blessing from God." Below are two links. Please note that these are thoughts produced by the intellectual kin of Barack Obama when you don't vote for him this November. How heartless must a person be to claim that the destruction of homes and property and loss of life can be a positive event?

http://www.redstate.com/diaries/absentee/2008/aug/30/fowler-fouls-hurricane-is-gods-favor-to-dem/
http://www.businessandmedia.org/articles/2008/20080830000004.aspx