Cold Oil

I noticed two things this morning on my way to work. The first was that it took too long for my vehicle to produce warm air; the other was a noticeable price spike at the pumps. It was just a few weeks ago (Dec. 22) that we here at PROFIT CONFIDENTIAL predicted (not a cold front… we’ll leave that up to the experts) that oil and gas would continue trending higher. Abnormally frigid weather in the U.S. Northeast has ignited heating fuel prices, so to speak. Cold weather in the Northeast, the world’s largest heating oil market, has boosted heating oil futures on the New York Mercantile Exchange seven percent since late December to more than 0.97 cents a gallon in Thursday trading.

New York light sweet crude was trading at $34.40 a barrel–the highest price since last March, when the imminent invasion of Iraq spooked traders to bid prices higher. U.S. Inventories are presently near critical levels. Government data this week showed crude stocks had fallen to 269 million barrels–the lowest level since 1975. And mother nature seems to have some more cold to help with demand side pricing.

Oil has found support from… take a guess, a weak U.S. dollar. OPEC has stated that a reason for sustaining high prices is the declining dollar and the fact that non-dollar investors are getting in on the act.

Oil prices rose to their highest annual average in more than twenty years in 2003. Coincidentally, the dollar sank 17% or so against the Euro during the year and seems to have sparked an across-the-board commodity rally.

Advertisement

To add to the whole price drive, U.S. Energy Secretary Spencer Abraham stated on Friday, January 9, 2004 that the U.S. will continue to purchase oil for America’s strategic reserves despite high prices. This important revelation reminds me of the Central Bank in England announcing gold sales prior to making them. Hmm. I wonder why prices dropped so suddenly in bullion markets?

At PROFIT CONFIDENTIAL, we see Abraham’s disclosure as somewhat similar. I’m sure he was just trying to set our minds at ease so “we the people” don’t worry about the nation’s strategic reserves.

But if I was long oil futures or long any producer stock I might just take advantage of that little tidbit of information. Wouldn’t you?