320M of 370M barrels needed on NYMEX for July delivery canceled ahead of today’s exp

Options Trader: Friday Outlook
by: Philip Davis posted on: June 20, 2008 | about stocks: DIA / MER

http://seekingalpha.com/article/82128-options-trader-friday-outlook

This was one annoying week and we’ll be glad to see it end.

In fact this whole expiration period has been a downer in general and we’ve had to work very hard just to stay even, which isn’t really that much fun. As I noted in last night’s Big Chart Review, since I made my bottom call last week things have been pretty even but the pre-markets today are terrible so we’re going to test my support levels one more time this week I suppose.

Oil is back up to $134 this morning and some rumor about Merrill Lynch (MER) issuing a profit warning is spooking the markets. This is all it takes to crash the European Markets and the US pre-market: "A trader in London, speaking on condition of anonymity, said "rumors that Merrill are guiding down" were largely responsible for the move lower. 'There’s talk of Merrill announcing an Alt-A loss,'' said an unnamed U.S. trader, referring to mortgages that are higher quality than subprime and include "jumbo" loans. A Merrill Lynch spokeswoman declined to comment."

So, unless a MER executive is available and ready to refute rumors at 5am, then a single "unnamed US trader" can start a rumor that knocked the DAX down 100 points in less than an hour. This market is totally screwed up folks!

I’ll rant about the media later but it used to be that we didn’t believe a rumor until Walter Kronkite told us it was true. These days, the 24-hour financial networks are so eager to scoop each other that they will run with virtually any rumor and keep reporting it until it is proven false. There is no innocent until proven guilty in the media - the hyenas rule the markets.

Yes, there are lots of problems in the market, but they are the exact same problems we had last year, when the markets rallied all summer. This relentless flow of negative news only makes me want to buy more because it’s a sign of desperation on the part of the bears, who were counting on pushing the Dow back down to 11,700, a level it seems to have no interest in revisiting.

Now we have the Saudi oil summit this weekend and Saudi Arabia took 1.5M barrels a day off-line since July of ‘05 in a series of cuts and is currently producing just over 8Mbd out of thier estimated 10.5Mbd maximum capacity. It is forecast by the EIA that next year OPEC alone will have over 3Mbd of spare capacity so this would be a terrible time for global demand to take a nose dive or there are going to be a lot of idle wells… Should global demand drop another 5% in the next 12 months, we could be looking at 8Mbd less demand than there was just a year ago.




As of yesterday, 320M of the 370M barrels that were "needed" on the NYMEX for July delivery were cancelled ahead of today’s contract expiration. Those "needs" were rolled into August (300Mb), Sept (132Mb), Oct (69Mb), Nov (49Mb) and Dec (187Mb), although the entire strip dropped like a rock. There are still months in 2011 and 2012 where no trader has purchased a single barrel since oil was at $70. If there were legitimate hedging going on, don’t you think airlines or FedEx (FDX) or UPS would have thought they would need barrels in 2011 and 2012 or were those years they are planning on not delivering any packages?

This whole thing is an evil, criminal farce - it’s a con that is being played on the American people and the people of this planet to enrich a very select few at the expense of pretty much everyone else but when you have a President, a Vice-President, a Treasury Secretary and and Energy Secretary all sitting in the pockets of, not just Big Oil, but the Saudis themselves - what hope do the people of this country really have for relief?

Over in Asia, the Hang Seng was flat but the Shanghai made it back over 300 with a 3% bounce while the Nikkei fell 188 points (1.3%). The big news yesterday was China raising the price of gasoline by 17% and, according to the WSJ: "The move, Beijing’s second price increase since November and its biggest in four years, did what the U.S. has FAILED to do with its efforts to exert pressure on producers." What an embarrassment that China has a better grasp of economics than our own administration - raise the price, lower demand, the price of crude drops. Hand out money, dilute the gasoline with ethanol to keep those Hummers humming, talk about lowering fuel taxes and the price of oil rises - who’d have thought?

China’s success in affecting the price of oil is going to put more pressure on other governments to take action as there are now world-wide protests breaking out against high oil prices. India looks like the next nation to take action as their finance minister has called for "strong measures" to curb that country’s 11% inflation.

Europe is off about 1.5% thanks to the banking rumors and they are very upset about the Air Force reversal on the tanker contract because they already paid off John McCain’s team to kill the deal for BA (according to the WSJ). The EU is pressing ahead with it’s ratification, despite Ireland’s rejection of the Lisbon treaty, this has stalled out the dollar rally but I think we are firmly above 73 now and there’s not much that will stop us from testing 75 by July.

It’s option expiration day and the end of the quarter so be ready for anything. I’m hoping this pre-market move is just a flush ahead of a large round of window-dressing later this afternoon. The question is whether or not we hold it together next week but today should be very interesting and I sure do like the Merrill Lynch (MER) $35s as a day trade if they open below $1.50.

Have a great weekend!

 

FedEx and UPS pass the costs onto the consumer and why hedge at these prices?

the airlines didn't hedge because they knew they'd be out of business by 2010

 

Oil futures market is extremely easy to manipulate, it's market cap is only $177 billion.

Exxon Mobile (XOM) alone is around $480 billion.

 

So we need more speculators, not less....

 

Fedex might be using gliders by 2011.

 

LOL, so true.

 

I blame the people, as usual.

Stop driving, stop spending, and stop taking it up the $%#.

I did my part many years ago.

I am not a consumption junkie. Are you?

Read a good book. No need to burn oil.

 

And we all know that FDX and UPS use straight oil to fill up their planes. You know, in the same fantasy land where we fill up our cars with light, sweet crude oil......

They use custom tailored OTC contracts.

 

quit posting stuff from seekingbullshit.

 

How much will you pay me?