Oil closed on Nov 3 at 59.14 USD per barrel. These days there are some jittery news that could cause the price of oil to increase. Cramer in his 24-10-2006 podcast said that oil futures were driven up by the hedge funds. I agree and said so in July and Fortune said the same in May of this year. History is that, history, and the question is, where is oil headed in the future?
Let’s start with the basics and see where oil futures are trading. At the NYMEX the oil futures are trading as follows:
- Dec 2006: 59.15
- Jan 2007: 60.88
- Feb 2007: 62.10
- Mar 2007: 63.08
- April 2007: 63.87
- May 2007: 64.51
The various contracts are indicating a higher price as time goes. The increments are moderate, but they exist. I want to focus on the Mar 2007 contracts. Looking at the call options, combing the strike and price of the option the price of oil is hovering for the most part under 70. Looking at the put options they are hovering below 65 for the most part. The traders seem to think that oil will probably trade in the 55 to 75 USD window, with the median probably being around 65.
I think we are headed for very quick knee jerk of increasing oil prices. First it seems hedge funds are slowly moving back into energy. Second, we are headed into the winter season and typically there is more demand for oil and more volatility. Third, Iran is making subtle hints sanctions might hurt others as well. Working against increasing oil prices is the prediction of Environment Canada for a warm dry winter. If sanctions are weak, and the winter is warm it means lower oil prices.
I think there is going to be a quick oil price run-up because of a conversation I had at doggy school. My wife and I regularly attend doggy school with our two English Bulldogs. At the school Louys our male Bulldog has a friend call Xena a Doberman mixture. The owner of Xena is a farmer and we were talking about the weather. I explicitly asked her about the winter. Her reply was, “Yeah it seems like a warm winter, but oddly our horses have an extremely thick fur indicating a cold winter.” We live in Switzerland and her comment was that we would have a cold winter in Switzerland.
In the referenced Environment Canada article prediction wise they are saying warm, but the farmers alamanc is saying cold. What do you believe? I am tempted to think that the farmers might have a nugget of truth that will be exaggerated by the market due to other “factors” such as Iran, Iraq, you name it. So if you have some money to burn on a risk that could pay off, again this is REALLY risky money, buy a March call option at 64.50 for 2.75 or 65.00 for 2.55. If a knee jerk reaction happens I am tempted to believe oil will go over 70, maybe 80 for a short period of time before falling again.
For the near to medium term the trading range of oil should be 55 to 65. My earlier prediction that oil will touch 45 I am stepping back from