Crude Oil - Bearish On Oil? Saudis Made The US Cover Its Short.I've had a number of successful calls on crude oil, which you can find in my post history. In those calls, I had always been bearish on oil, anticipating a run to a 4-handle.
However, I reassessed my prior assumptions when the MMs took out the Low Of The Year in quick order to start May. I haven't been particularly sure in the time that has passed, but between price action and some recent news, I now believe oil is set to reverse.
The situation in mainland China with Xi Jinping and the Chinese Communist Party is very tense. The pandemic has taken a huge toll on the country, which the Party is not reporting to the world, and you can tell this if you look at their obviously bogus COVID death and infection stats published on major data aggregators.
This matters because since Putin invaded Ukraine last year, there's become something of an alliance between the Saudis, Russia, China, and India, with many oil transactions no longer settling in the U.S. Petrodollar.
So you have to be really careful trading right now with the geopolitical situation at hand. Everyone has flipped bullish on equities and is expecting a new parabolic run, but the situation is just as prime for a sharp and dramatic turnaround, which I reference in my recent call on the SPY ETF:
SPY - It's Life or Death For Bears
When it comes to China, Xi has the looming threat of having inherited Jiang Zemin and the CCP's persecution of Falun Gong, which targeted 100 million people and has even harvested their organs.
Xi and the CCP also face the growing trend of the movement to return to China's traditional 5,000 year culture, which is the crown jewel, the magnum opus, of the whole world and all of human history.
So the most important country in the world is very unstable, and you aren't hearing anything about what is going on. But the controllers know something is wrong and are scurrying about frantically, thinking about how they can take your stuff on the way down.
So, my bearishness on oil has been based on the fact that the Biden Administration has drained the Strategic Petroleum Reserve, significant because although OPEC+ is a huge producer of oil, the US and its vassals, such as Canada, by far produce the most oil in the world.
Washington selling the SPR is a short on the market by definition and they unloaded hard in the 90s and 80s, saying they wanted to buy back in the 60s.
Yet the two times we've had oil in the 60s, they haven't rebought. I believe they intended to drive the market lower for longer and rebuy then.
A few recent pieces of news came out.
One is OPEC had a scheduled meeting in Vienna in early June, which they held in person, despite the next major meeting being in July. During that meeting, Reuters, WSJ, and Bloomberg found themselves disinvited, while every other media did not.
Moreover, on Friday The Washington Post stated that Saudi King MBS warned the Biden Administration it would inflict economic pain when the US complained about production cuts.
The Saudis have teeth because they own Aramco, which is also stationed in the United States, and the Saudis buy arms from the military industrial complex.
NATO and the US needs to have the Saudis not wanting to get rid of them if they are to have any chance of deposing Putin and taking Russia for the New World Order.
It's been well known that OPEC+, of which the Saudis are the biggest producer by far, want higher prices and need $80-100 to continue to run a national surplus.
The second biggest news is a June 9 announcement from the Department of Energy stating the US will replenish 6 million barrels of oil from the SPR.
This means Washington is covering its shorts.
Now, you'll complain, fairly so, that the Democratic Socialists of America have sold some 280 million barrels of oil from the SPR since Biden was inaugurated in 2021, and you're right.
6 million barrels is certainly a drop compared to what they've sold.
However, a look at the EIA website puts the 6 million barrel figure into perspective: since November of '22, only 20 million barrels have been drained.
I will repeat myself again: the market maker is covering its shorts and that means it's very immediately dangerous to be short on oil and oil companies.
So, this is hard to go long on because the delta between $70 and the $63 low is 10%, and on futures at $1,000 PnL per $1 move per lot, that's a lot of "Ouching" as Abdulaziz has said for early comers.
However, generally speaking a bottom is a bottom and that means there won't be a new low. Either way, it's up to you to figure out where to go long and when to go long and if you want to go long.
The most immediate target, even in an ultimately bearish continuation scenario, is $85, and more specifically, $95.
And you may very well see a 9 handle as early as August or September.
The problem with short on oil is on the monthly:
COVID hysteria was an ultimate bottom. If -$40 wasn't an ultimate bottom then you call your mom and ask her what an ultimate bottom could be and let us know in the comments.
If you've got an ultimate bottom and no real highs were taken, the the market is aiming higher, and not lower.
A breakdown of price here means that oil as an industry is not going to recover, but yet green energy is a fallacy and alternative energy sources are nowhere to be found, while worldwide crude supply is actually not particularly abundant anymore.
So what fundamental story is supposed to be used to drive oil lower? A bunch of talking heads on Twitter complaining that oil is going lower?
That doesn't move markets. Producers have to deposit actual oil to go bigly short because contracts settle in physical goods.
Moreover, the price action in March before the big move down in May was really, really peculiar. You see it more clearly on the weekly:
Like, $2 away from a breakaway gap is where it chose to dump and actually set a new low of the year?
Really, to me, this says that since we haven't dumped anymore and now we're getting fundamentally extremely, extremely bullish news, that the target can only be $95.
People, for whatever reason, tend to like to buy above highs and so they'll get bullish at $85 and $95.
But why not get bullish at $70?
Warren Buffet keeps buying OXY. Is he doing this because oil is on the verge of another 5 year bear market?
If oil is going to pump, what does this mean for equities? What does it mean for the VIX?
With what's going on in the world, what does it mean for the future? How long will the happy continue?
It's really worth giving some sober thought to, and it's really worth cutting the furus and the propaganda outlets out of your information cycle.
