2011-06-12th (Sunday) - Thoughts on WTI Crude Oil

At the end of the previous trading session I had no open positions.

I trade West Texas Intermediate (WTI) Crude Oil Futures Contracts instead of Brent Crude because the limited storage capacity in Cushing causes Spot prices to move beyond implied volatility.
http://en.wikipedia.org/wiki/West_Texas_Intermediate

In the last week there has been news building up to the OPEC meeting.

Article - "Saudis Raise Oil Production to Curb Prices"
http://www.cnbc.com/id/43303603

Article - "Split by Infighting, OPEC Keeps a Cap on Oil"
http://www.nytimes.com/2011/06/09/business/global/09opec.html?_r=1

Article - "Brent rises after Opec discord over higher output"
http://www.ft.com/cms/s/0/3a51c054-9330-11e0-a038-00144feab49a.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058#axzz1P8Rx6U7t

Article - "Saudi Arabia, Defying OPEC, Will Raise Its Oil Output"
http://www.nytimes.com/2011/06/11/business/energy-environment/11oil.html?partner=yahoofinance

Last Wednesday 2011-06-08th (Wed) Saudi oil minister Ali Naimi's reaction after the OPEC meeting was aired on CNBC at 4:15 pm and I found it out of character.

Historically, cartels cheat by increasing its own national output while politically out-maneuvering other member countries to remain at status quo their member output; this maximizes its own nation's sales revenues, thus gaining advantage over member countries.

To act as a cheerleader and coax all members to increase cartel output is by its nature out of character, and defeats the primary function of price collusion of cartels.

This strongly signals that the cartel is preempting an external undesired competitor.

I recall from memory there were extensive studies done after the 2008 spike in prices, that point to the undesired political rise in power of regimes which will shift the economic and political status quo.

These are primarily US based company studies commenting on Venezuela from a US centric view.
http://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_industry

Article - "The Economics, Culture, and Politics of Oil in Venezuela"
http://venezuelanalysis.com/analysis/74

Article - "Venezuela's and Canada's Very Different Approaches to Oil"
http://venezuelanalysis.com/analysis/2138

I predict the increase in Supply would cause prices to fall temporarily, but market participants would eventually increase the Equilibrium Price to higher than before.  During the adjustment period we may see wider swings as a reflection of increased volatility in a semi-efficient cartel market.

Ultimately as a Trader only the trades matter.

Buy-To-Open 15 contracts US Crude July 2011 at 98.999 (2011-06-12, 22:55 pm EST)

The Eurozone situation causing the US Dollar to strengthen temporarily will reduce the profitability of my trade, but cannot be hedged out completely without using additional trading margin.

Currently I have the following position;
Long 15 contracts US Crude July 2011 with ACB of 98.999

US Crude July 2011 is currently 99.101 (2011-06-13, 04:14 am EST)

Total equity is 97% of June 1st, and unchanged from previous.

Stay Tuned,

Jeff
(2011-06-13, 04:14 am EST)