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Thursday, January 11, 2007

The Swoon In Oil Today

Oil prices rallied this morning -- perhpas on the news of US troops raiding an Iranian delegation in Iraq, perhaps on something else -- then sold off hard when bearish natural gas inventory data came out. What does that tell us? It tells me that the market is in a bearish mood right now. In a bull market, that kind of news would send oil prices on a tear (and it did that last summer). But now we’re seeing hedge funds turn all bearish on oil – they’re using news like this as opportunity to sell, not to buy.

If a real shooting war with Iran breaks out, even a short one, the hedge funds that are bearish on oil will have to cover some huge positions in a hurry. What’s your guess for where oil will go then?

Anyway, the bearish trend in oil will continue, and the market will continue to ignore increasingly bullish data and events on the ground, until it changes. For now, I'd want to stick to long-term and core plays in energy.

So why are a lot of oil sector stocks bouncing? Many traders think the recent sell-off is overdone. If we see another dump in oil like we did today, they might change their minds.
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