Oil shorts getting squeezed ahead of May 19 contract expiry?
Quite a few people are short the June crude oil futures contract going into contract expiry on May 19, but it looks to me like they're getting squeezed. Several reasons this is happening:
1) Supply destruction has been unprecedented, with shale producers bankrupted and output cuts by Russia and Saudi Arabia at maximum.
2) Gasoline demand has been surprisingly strong as scared consumers abandon mass transit in favor of driving their own vehicles.
3) EIA report seemed to show a surprise inventory draw on Wednesday (though if you dig into the numbers, the apparent draw was actually just an adjustment to last week's estimate).
4) The oil storage situation is not as bad as advertised.
5) The exchanges imposed a supply constraint on the number of available June futures contracts.
The chart is constructive, with oil prices having moved above some major moving averages with little sign of weakness. I picked up a few Exxon-Mobil calls as a speculative play ahead of contract expiration.
HOWEVER, this is a very short-term play. The crude inventory draw on the EIA report was an illusion, and there are currently 50 million barrels of Saudi crude on the water headed for the United States. I fully expect next Wednesday's inventory report to throw a wet blanket on this oil market and weaken prices.
1) Supply destruction has been unprecedented, with shale producers bankrupted and output cuts by Russia and Saudi Arabia at maximum.
2) Gasoline demand has been surprisingly strong as scared consumers abandon mass transit in favor of driving their own vehicles.
3) EIA report seemed to show a surprise inventory draw on Wednesday (though if you dig into the numbers, the apparent draw was actually just an adjustment to last week's estimate).
4) The oil storage situation is not as bad as advertised.
5) The exchanges imposed a supply constraint on the number of available June futures contracts.
The chart is constructive, with oil prices having moved above some major moving averages with little sign of weakness. I picked up a few Exxon-Mobil calls as a speculative play ahead of contract expiration.
HOWEVER, this is a very short-term play. The crude inventory draw on the EIA report was an illusion, and there are currently 50 million barrels of Saudi crude on the water headed for the United States. I fully expect next Wednesday's inventory report to throw a wet blanket on this oil market and weaken prices.
Comment:
Nailed it. Calls are up over 100% this morning.
