Oil speculators have us over a barrel

Oilintel, Houston, TX - The NYMEX July crude and June RBOB gasoline and heating oil contracts all ended the day sharply above Tuesday's close. Suddenly, supplies are tight again today.

Tuesdday's downtrend continued in overnight trading and during the early part of Wednesday's open outcry session, as crude oil fell nearly an additional $3.00, adding to yesterday's $3.34 drop. However, news that Nigerian output for July may be only 1.75 million bpd versus "normal" levels near the 2.0 million bpd level sparked a massive amount of short-covering.

We believe Wednesday's move higher is just one more example of the financial power the large hedge funds and financial trading houses exert over commodities generally and especially in the energy markets. It's also an example of why the government needs to find some answers that can slow down the amount of speculation in the markets.

Frankly, the futures markets were not designed as investment opportunities or hedges against other investments. In fact, the Nigerian news was circulating yesterday and yet prices were down sharply. The real facts seem to indicate that until the perennial bulls either achieve a target of $150.00 for crude oil, or the government finds a way to halt the daily volatility in prices, that the International Energy Agency's head of the oil industry and markets division, Lawrence Eagles, warned recently is a "speculative overshoot" in crude oil markets. "The IEA has consistently called for more data transparency, but the message is now being rammed home by a $135 sledgehammer," he said.

Of course any legislation that might come out of Congress would face a veto from this White House due to this administration's refusal to interfere with normal business functions, except when its serves their purpose, which in our opinion, distorts the idea of free trade it says it wants to defend.

Our early analysis for overnight trading suggests that prices are likely to at least test today's highs with at least a 50% chance they will breach that level. We believe renewed hype will likely occur in overnight trading as some market participants will want traders to focus on demand that they claim is outpacing supplies, especially in front of Thursday's EIA inventory estimates for the week ending May 23. We believe that most analysts are predicting data that is, at best neutral. Of course the perennial bulls have a knack of turning neutral or even bearish data to better suit their positions.

At 9.00am crude was $130.42/barrel.