The oil speculators are at it again. The reported supply of oil is being distorted and the high price of oil will not last very long. As certain hedge funds that get their money from OPEC sources sell crude oil to themselves (since they own the commodity), there has been an artificial increase in the price of crude oil and gasoline. Reliable sources have reported to me that millions of barrels of crude oil are now being “stored” in barges and ships steamin to port as slow and round about routes as possible. These “in transit” barrels are not included in reported storage.
Here’s the rub. At some point the ships and barges have to be off loaded . . all available “in transit storage” will fill up and the oil will have to be dumped onto the market. Best estimates of experts tell us that sometime before June 30, crude oil prices will drop below $50 bringing gasoline to $2.00 on the NYME.
The refiners are working it from the other end. They will force down the price of deisel, to help keep gasoline prices up. Prior to 1985, deisel continuosly sold at a discount to gasoline. In the refining process, crude oil must first have the deisel (No. 2 oil) refined out before producing gasoline. So diesel is much easier and cheaper to produce. To refine gasoline, the oil “left over” after the deisel is separated out must go through a “cat cracker”, which is very expensive to operate. Platinum is required to refine gasoline. With the increase in the price of platinum, gasoline cost to refine increases so the price of gasoline will be marginally determined by the price of platinum.
So here is what the rest of 2009 looks like for the gasoline and deisel market. To increase volume sales of diesel at a lower refining cost and keep gasoline at $2.00 refiners will control the retail price of these products. Refiners will become more profitable.
Invest in refiners and deisel powered vehicles. Truckers will be more profitable as cross country trucking fuel prices will decrease. In 3 months that will transfer to “deflation” in the price of consumer products as the decrease of transporting products to market continues to decrease. Crude oil will “stablize” to a $40 to $50 trading range.
For speculation you will be best served to sell “out of the money” contract short if over $65/bbl., that would be October 2009 contracts. When in the money contracts on oil drops below $50 just buy the October contract back cheaper. There is 85% certainty on this trade, a 15% chance this won’t happen.
Last 2 quarters of 2009 gasoline prices will return to $2 and deisel fuel will be cheaper. This will drive down costs to transport products to market. Oil product prices downtrend will offer up investment opportunities and result in deflationary prices in retail and manufactured products.