Fundamental Trading Diary

Fundamental analysis of the capital markets

Cash From Squeezed Financial Shorts Into Crude

I’ve bought 1 contract of September Light Crude at $130.00. I am looking for $132.00 a barrel while cash raised from covering short sales of financials will likely find its way into commodities. Oil is bound to come back as demand is not likely to be kerbed quite yet. There are yet a lot of strong hands in oil.

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Oil has come down a long way from over $146. This is despite the fact that the geopolitical tension between the USA, Israel and Iran has dramatically heated up. This tells us a few things: firstly, the geopolitical risk premium is actually not that high, and that it’s at least temporarily understated.

Other Dynamics At Play

I’ve maintained that the true confirmation of recession is oil coming down and staying down. This is the true test as to whether the global economy is slowing down and consuming less. In the next few months, there will be a lot less jet fuel being consumed as airlines slash routes, and the price of tickets will be buoyed. This will have an effect on both increasing and decreasing consumption: more people will drive, and less people will fly. The price of oil and the spread between kerosine and gasoline will be a critical confirmation indicator of where economic growth stands.

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July 18, 2008 - Posted by | Uncategorized

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