Mostly: Classical

[Frank Pembleton]

excerpt from-- 247profits e-Dispatch

"The Strategic Petroleum Reserve is an important element of our nation's energy security. To maximize long-term protection against oil supply disruptions, I am directing [... ] the Secretary of Energy to fill the SPR up to its 700 million barrel capacity."

Thus spoke President George W. Bush on November 13, 2001. For those who don't know, the SPR was originally set up in response to the 1973-74 oil embargo. It is the largest stockpile of government-owned emergency crude oil in the world. And it is almost full. But while politicos are currently calling for a halt to further shipments... arguing that the sudden drop in demand would ease down gasoline prices... the Administration is steadfastly refusing to comply.

At least that's the story they're sticking to. Our professional cynic and Red Zone chief Christian DeHaemer, however, today provided a new twist to the old plot: "$38 a barrel oil won't last," he oracled this morning.

"Better yet, I know why the price will drop... and when.

"You see, over the past two plus years, 103.8 million barrels have been pumped into the SPR, bringing the grand total to 650 million barrels. The intake into the SPR is over 1 million barrels a week, or 1% of total US crude oil demand (everything happens at the margins). That leaves 50 weeks until the tank is full.

"But despite what you may hear, things are going to change. Bush is already taking heat for high prices at the pump. Here is the current schedule for filling the SPR. Note how it drops off over the next three months and again before November's election.

 
  
 Month      Scheduled 
 Mar 2004   6.063 
 Apr 2004   5.625 
 May 2004   2.150 
 Jun 2004   2.000 
 Jul 2004   4.965 
 Aug 2004   4.235 
 Sep 2004       0 
 Oct 2004   5.100 
 

"It's all politics, of course. Bush said today that he would keep to this schedule despite high gas prices. But an easing is already figured into the calendar... right at the most opportune time, when American consumers are fueling up their cars en route to Disneyland or Six Flags, and in the weeks before they head out to the ballots. Other countries are also building their SPR's, which maintains demand. When this demands slackens, oil prices will fall dramatically.

"Furthermore, oil is a cyclical business. If you ignore everything but the long-term chart, you are way ahead of the game. Oil prices have been high for three-and-a-half years. Buy when it is low and sell when it is high. It is artificially high right now. I am short oil. In the Extreme Volatility Speculator, I recommended some June puts. We are up around 100% in a week.

"I expect that by June these options will be worth a great deal more."