Five Days and Counting

Jim Brown
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It is only five days until OilSlick subscribers will begin receiving the daily emails with new plays and play updates. On January 4th we will start building our portfolios for 2010 and it appears there could be some volatile opportunities in January.

Crude prices are up on lower inventories and the Iran security premium. Iran's deadline is January 1st and nobody expect them to honor it and hardly anyone expect any major repercussions from their continued default. Uncle China has been protecting them from the worst actions and supplying aid to offset funds lost from sanctions. This is not expected to stop until China sees they are really building bombs. Before then Israel will have already attacked so the entire point it mute. This Iran premium is likely to evaporate in January when all the huffing and puffing blows over.

The lower inventories are due in part to the tax avoidance strategies by the refiners. Any oil in inventory at year-end incurs a property tax for that state. Refiners typically push back deliveries until the first week of January in order to avoid those taxes. That suggests we will have a couple weeks of strong inventory gains in early January and that is likely to push prices sharply lower. This is a trade we can easily make in early January and it will probably give us some decent entry points for some long-term positions.

The weekly API inventory numbers out after the close on Tuesday showed a ris ein inventories of 1.725 million barrels. Expectations were for another drop of 2 million. Evidently somebody either did not get the memo to stall the shipment or some ship captain was in a hurry to start another run. Obviously I am kidding because a 1.7 mb build is nothing after the declines of the past several weeks and the API data tends to be a bit volatile. The EIA data on Wednesday morning is the report that counts.

In the U.S. retail gasoline prices rose for the fourth consecutive day and the first 4-day streak since October. Mastercard's Spending Pulse report said Americans bought more gasoline last week than they did in the same period in 2008. That is the fifth consecutive week that demand improved.

Somali pirates fired on a Kuwaiti oil tanker on Wednesday in an attempt to hijack the vessel. Pirates used automatic weapons and rocket propelled grenades as they chased the tanker in a skiff. The tanker outran the pirates. The Somali pirates are expanding their area of operation into the Gulf of Aden, Arabian Sea and the Indian Ocean. They recently captured a freighter, a bulk carrier and a chemical tanker despite an increase in foreign warships patrolling the Gulf of Aden.

I am looking forward to trading these events but even more in building a short and long term portfolio that will benefit from future energy trends.

Jim Brown