Oil Market Trade Setup

Inventory Report

Today we had another bad inventory report, and this is to be expected as we are in the weak period for the oil market, from a seasonal demand and refining demand standpoint. I am not looking for much relief on this front until around the second week of February as spring starts to get on people`s radar. I was asked about this statement that I made to provide some color regarding a couple of issues “let us say the next 11 months of the year I believe Oil prices will be higher than they are now.”

Price Target

The first question is how much higher? Well let us assume oil is going down to $25 a barrel, $20 in an extreme case scenario. This would be good for oil markets actually. The problem is that the oil market has a lot of guys like Harold Hamm who need to retire from the industry, these people are just archaic dinosaurs who don’t understand the value of a good market intelligence program. If he had one at Continental Resources he never would have taken off his oil hedges when oil was in the $65-$75 area, this fact alone cost his company and shareholders a fortune. There are just too many clueless idiots with no finance background in the shale space. A decent drop in the $20s for oil would be a good thing, it would force people out of the business, lock, stock and barrel.

Market Intelligence

You wouldn`t believe how many major oil companies in Houston do not have a basic market intelligence department, that is how clueless they were in being prepared for this pullback in oil prices. Some of the biggest firms have one person in this role that isn`t even a real market intelligence qualified individual. The point here is that the oil industry has been fat and happy and out of touch with reality for some time. There is too much dead wood in the industry that needs a good house cleaning. In listening to Harold Hamm today on Bloomberg, he still doesn`t get it. It is this Harold Hamm Mentality of I don`t need any hedges here, and Oil prices will recover that has led to oil prices falling so much. Shale Production should have stopped a year ago, we should be producing around 6 Million barrels per day, and dropping fast. Consequently it actually would be a good thing for oil markets if oil took this next leg down, there are just that many stupid, clueless idiots in the industry.