Oil “Well Overpriced” and Will Keep Falling; Gasoline to Follow, Energy Trader Says

After rallying nearly 50% this year, crude prices hit a major speed bump this week as the dollar has firmed up and inventories have risen.
Oil prices were “well overpriced” in the $70s and will continue to weaken in the weeks and months ahead, says James Cordier, President of Liberty Trading Group and co-author of The Complete Guide to Option Selling.

Rather than increased demand, the recent rally was based mainly on speculative demand driven by government stimulus packages, Cordier says. Most notably, a flood of liquidity in China found its way into commodities and China’s economy now “looks like a bubble,” he says, joining a growing chorus.

More evidence the rally was not demand driven emerged Wednesday, when the Energy Department said inventories surged by 5.15 million barrels in the week ended July 24, the biggest weekly increase since April and vs. forecasts for a decline if 1.5 million barrels, according to Bloomberg.

In reaction, crude futures were recently down more than 5%, on track for their biggest decline in three months.

Cordier, who made a well-timed call on a coming oil rally here in February, now expects crude to fall $10 to $15 from recent levels. In anticipation of that drop, Liberty is making a bearish trade — “selling calls with both hands,” Cordier says.

If and when that happens, he also predicts prices at the pump will fall 10 to 15 cents from current levels, which would be welcomed news for cash-strapped Americans.

Strategy Update: 8 July 2009

Strategy Update: 8 July 2009

There is a likelihood that the USD could continue to hold up or rally tomorrow thus killing gold and base metal prices again….. USD index closed at 80.66 tonight. It needs to break up above 81 and preferably hit 82 before an upside move could be confirmed.

EURUSD has dropped from above $1.4250 to nearly touch $1.3750 before closing slightly higher… this recent weakness in the cross is due more to a normal corrective move… the trend still holds and continues to point upwards…

USDJPY tracking lower still… stuck in a downtrend for now.

Japanese machine orders unexpectedly fell for a third month and the current-account surplus narrowed because of plunging exports, stoking concern that the economy will struggle to emerge from its worst postwar recession.

Orders, an indicator of spending by companies in the next three to six months, declined 3 percent in May from April, the Cabinet Office said today in Tokyo. The current-account excess shrank 34.3 percent from a year ago, the Finance Ministry said. Policy makers also offered unlimited loans to commercial banks at 0.1 percent in exchange for approved collateral.

It seems the USD is sitting on crucial levels now… can it break higher

Oil might fare better since its been down 6 days running… being sold hard… it might be down less than the rest and might actually be positive. Long Bonds are rallying strongly – 10 yr bonds yield dropped from 3.45% to 3.25% overnight.

Coal seems to be interesting… it is not reacting to the drop in Oil prices… even though oil fell $2 overnight… there seems to be a large amount of willing buyers for coal stocks… This could be also due to the recent Goldman rerating of future coal prices. At any rate, the strong tone in the face of a weak and falling oil price is very good. Any positive sign in Oil will very likely ignite Coal stocks to the upside.

The DOW will continue to slide in the coming days until oversold or a more significant support point is hit.

Metals broke the support points today (will it follow through ?)… tomorrow’s move (if lower) will confirm the breaks.

Oil Price to Match Record $147 in Three Years, Pickens Says

July 7 (Bloomberg) – T. Boone Pickens, founder and chairman of Dallas-based BP Capital LLC, said oil prices will match last year’s record $147 a barrel in three years as producers fail to increase output.

“We’ll be flat at 85 million barrels a year,” Pickens said in an interview. “By 2013 we’re going to see a decline in production. In 10 years we’ll be at $300 a barrel.”

Pickens, 81, one year ago started a $60 million promotion for a national energy plan that relies on domestically produced natural gas to cut U.S. dependence on foreign oil. Without a switch to gas, the U.S. will be spending $2 trillion a year importing oil, he said.

“The problem is we don’t have the oil,” Pickens said. “And we’ve got gas coming out our ears.”

Crude oil futures for August delivery today fell $1.12, or 1.7 percent, to $62.93 a barrel on the New York Mercantile Exchange. The price has gained 41 percent this year.

Oil is not going to get any less expensive relative to natural gas, Pickens said. He said gas needs no refining and emits 50 percent less pollution than gasoline.

His plan has received some support in Congress, said Graham Mattison, an analyst at Lazard Capital Markets in New York.

“Political support for the natural gas vehicle industry continues to build,” Mattison said. A House bill would double some natural-gas vehicle tax credits and double the amount stations would get to install pumps for the fuel, he said. The Senate may consider similar legislation tomorrow, he said.

Traders swing for the fences with leveraged ETFs

Double or Triple leveraged ETFs

Boston (MarketWatch) — Everyone knows that in baseball, a triple is better than a single. But highly traded ETFs designed to magnify the market’s daily moves by as much as three times probably shouldn’t be fielded in most individual investors’ portfolios, experts say.

Some investors might be surprised to know that 300% leveraged exchange-traded funds tracking the financial sector managed by a little-known Boston-based firm are routinely among the most highly-traded securities in the U.S.

Energy Costs Could Kill Recovery
Oil and gas prices are up significantly over the last month. The summer driving season is likely to keep them high, and this has the potential to forestall the economic recovery. Chris Noble reports.

Direxion Daily Financial Bull 3x Shares (FAS 8.36, +0.02, +0.24%) seeks daily investment results, before fees and expenses, of three times the price performance of a financial-stocks index. Meanwhile, Direxion Daily Financial Bear 3x Shares (FAZ 5.12, -0.01, -0.19%) is programmed to deliver 300% of the inverse, or opposite, of the sector’s daily gyrations. This bearish ETF can be used to bet against the banking sector, or hedge.

When action heats up in the financial sector, traders flock to these ETFs to double-up or triple-up on their wagers. The juiced-up financial Direxion ETFs are often among the U.S. trading-volume leaders, sometimes reaching 500 million shares changing hands in a single day. They can see wild swings with gains and losses topping 40% in one session, while the average holding period for these funds is less than a day.

“These ETFs are designed for fast bets,” says Ken Leon, an analyst at Standard & Poor’s. “Get in and get out.”

Power hitters
When the U.S. ETF business was getting off the ground in the 1990s, most of the products were simply index funds packaged in a low-cost, tax-efficient wrapper that could be traded on an exchange. Traders and hedge funds were attracted to the ability to trade market segments and industry sectors during the day. But many of the features of ETFs also made them suitable holdings for investors and financial advisers with a buy-and-hold approach.

However, the leveraged and inverse ETFs should not be grouped into the same category as their plain-vanilla forerunners.

“They are very different from equity-based ETFs,” Leon said. “There are lots of caveats with leveraged and inverse ETFs.”

Aside from their bone-jarring volatility, over the long term the targeted leverage doesn’t hold up, due to the effects of compounding returns and the way in which the ETFs reset the leverage on a daily basis. In other words, just because the tracking index has risen 5% for a given month, it doesn’t mean the twice-leveraged bullish ETF will post a 10% return. In volatile markets, the results can become even more skewed, so investors need to keep a very close eye on these ETFs.

That said, the brisk trading volume and extremely brief holding periods of leveraged ETFs suggests the products are being used as they were designed — as short-term trading vehicles.

Just counting the U.S. ETF market, leveraged and leveraged-inverse portfolios command only about 5% of overall market share by assets, according to industry research.

There are a wide range of users, including hedge funds, day traders and investors putting hedging strategies to work. The inverse ETFs allow investors to “short” markets, or profit from declines, without opening up a margin account. There are leveraged and inverse ETFs, as well as exchange-traded notes, covering various markets such as stocks, commodities, currencies and Treasury bonds.

The leverage allows investors to take market positions with less capital. With bearish ETFs, investors can lose a lot fast, but their losses aren’t unlimited as when shorting individual stocks.

“They’re very interesting products, and they’ve really caught on in markets,” said Leon at S&P. “Although most are fairly new with limited track records.”

He stressed other key features of leveraged and inverse funds that investors need to understand if they trade what some call ETFs on steroids.

Most index-tracking ETFs invest directly in stocks or bonds. But with leveraged and inverse funds, the underlying portfolio is often comprised of derivatives and futures contracts. As a result, the ETFs aren’t as tax efficient as traditional ETFs, and investors are taking on counterparty risk if the fund utilizes swaps. The credit risk of bearish financial ETFs became an issue when the short-selling of certain financial stocks was temporarily banned during the credit crunch.

Doubles and triples

In ETNs, Invesco PowerShares and Deutsche Bank have partnered to offer leveraged commodity products such as PowerShares DB Crude Oil Double Long ETN (DXO 4.13, 0.00, 0.00%) . See related story on ETNs.

There are leveraged and inverse ETFs for commodities, currencies and stocks. This market is dominated by ProShares, Direxion and Rydex Investments.

ProShares was first on the scene with bull and bear versions tracking market indexes, offering 200% daily leverage. Direxion, which was known as Potomac Funds until 2006, upped the ante with three-times leverage, or 300%.

The aforementioned Direxion financial-sector ETFs have seen phenomenal trading volume, even though the funds are less than a year old. The ETFs have at times performed like Mexican jumping beans as the uncertainty hovering over banks has attracted legions of traders betting for or against financial stocks.

Andy O’Rourke, Direxion’s marketing director, in an interview said the firm was “a bit surprised” by the trading in the financial-sector funds that go by the tickers FAZ and FAS. At the end of May, the pair had about $3 billion in assets combined.

“We didn’t expect them to be quite so hot,” he said, arguing the funds fill a particular niche.

“The herds move from one sector to another,” O’Rourke added.

As a firm, Direxion has seen its assets under management jump to $6.6 billion at the end of May, from $1.5 billion at the end of November 2008. ETFs account for $4.8 billion of the current total.

“Most of our assets have come from ETFs,” O’Rourke said. “They’re trading products, for sure. We want investors to understand what they’re buying.”

Direxion Daily Financial Bear 3x Shares touched an intraday high of $201.86 in November 2008, according to FactSet Research. On June 9, it closed at $4.34 a share, a loss of nearly 98%.

Despite having just $1.6 billion in assets at the end of May, $43 billion worth of Direxion Daily Financial Bear 3x Shares shares traded hands in May, says IndexUniverse.com editor Matt Hougan.

“That’s $2.2 billion a day, meaning the fund turned over its entire portfolio every single trading day of the month,” he said, sourcing data from the National Stock Exchange. Direxion Daily Financial Bear 3x Shares was down nearly 88% for the year-to-date period through June 9, according to Morningstar Inc.

ProShares UltraShort Financials (SKF 44.72, 0.00, 0.00%) , a 200% leveraged bearish ETF, has more than $1 billion in assets. ProShares and Rydex have reportedly filed to launch their own ETFs that give 300% leverage.

ProShares Chairman Michael Sapir said through May, the firm has seen nearly $8 billion of inflows so far this year. Total assets are roughly $26 billion.

Leveraged and inverse ETFs opened up sophisticated strategies to an untapped user group, he said. ProShares toiled for seven years before it was able to bring its innovative ETFs to market in 2006.

“Demand has been better than we would’ve estimated going into the business,” Sapir said.

Rogue oil trader blamed for Tuesday’s spike

Unauthorized trading in oil futures by an employee resulted in a nearly $10 million loss for brokerage PVM Oil Futures and is being blamed for a dramatic spike in futures prices earlier this week, according to news reports.

“As a result of a series of unauthorized trades, substantial volumes of futures contracts were held by PVM. When this was discovered, the positions were closed in an orderly fashion,” PVM Managing Director Robin Bieber told The Wall Street Journal. The company immediately notified its clearing broker, the Financial Services Authority and the IntercontinentalExchange, he said.

Bieber told the Journal that the company had met its margin call and was conducting business “as normal.” The firm is a subsidiary of independent, privately-owned oil broker PVM Oil Associates.

A broker at PVM’s London office was said to have purchased between 7 million to 10 million barrels of ICE Brent crude futures early Tuesday.

Brent crude futures on the ICE exchange, as well as crude futures at the New York Mercantile Exchange, jumped more than 2% within a minute early Tuesday. The spike drove ICE Brent to an eight-month high of $73.50

Without this abberation maybe the oil price would have broken under $70 a few days faster and set the down trend in motion without any hesitation.

Strategy Update

2 July 2009-
“Short everything and remain short ! except for the DOGS !!”
levels at present, Dow 8280, Gold 929.30, Oil 66.20, USD Index 79.66, EURUSD 1.3998, Copper $2.2689, Nickel $7.4382, *DOG 67.81 *this one is a short play and should go up as the DOW falls… double short DOW

TECHNICAL STUDIES & OUTLOOK
DOW JONES     downtrend
confirms breakdown in uptrend… support around 8220 levels, look for that level to be tested and likely broken if downtrend moves in earnest.
Fundamentally there are a lot of negative issues recently that could materialise:
- California default, Recent stock issuance globally to cap rises and provide downside liquidity, unemployment high, Eastern EU countries that could default on their bonds leading to Western EU states facing more write downs, lack of consumer spend and travel to hit hotels and commercial prop portfolios, Record Bond issuance leading to higher and higher bond rates (bad for stocks)
- Good news ? we have summer… oh that means less market participation and winter months for miners = less mining in winter
- $INDU for chart on www.stockcharts.com

OIL & Coal     downtrend
broke down into down trend a few days ago and todays decisive $2.00+ drop to $66 range confirms the down trend move is underway…this could logically lead to the capitulation of the metals rally also. Interesting to note that the Dow Jones Oil and Gas Index has also broken down. Stay short commodities with Oil leading the way lower !
Expect coal stocks to also suffer from the breakdown in oil… note that the coal prices for delivery in all 3 major areas have had 2 down weeks following recent up moves… is that a sign that the coal prices have resumed a downward move.
- $WTIC

GOLD     downtrend
Stuck under $940… failed to break through it after a few attempts this week. *more details under GOLD in index page. $GOLD

METALS     uptrend, but becareful
still in uptrends but with oil breaking down… becareful

USD Index     downtrend
still in downtrend
interestingly EUR might be having more issues soon versus the USD… EURUSD used to top out at $1.40 or so… but seems like the EUR might strenghten pass that point at present. Let’s see if it manages to break up decisively.
There was a comment from a fund manager that the recent CNY strenght against the USD was the cause of all the extra funds coming into the oil complex.
- $USD

BONDS, INFLATION and ECONOMIES               30yr yields downtrend
30year US Bond yields topped out at 5% recently and seems to have broken down… with it entering a downtrend at present. Looks like funds are shifting back into Bonds at present and yields might continue to fall for now. This would be contrary to the inflation fears that has been in the forefront recently, with metals prices and oil spiking up strongly.

Contrary Fundamental Backdrop (on hold for now)- Govt issuance of bonds to continue as funding needed for massive deficit spending at present… expect bond prices to keep dropping and rates to keep moving higher on the long end, even though for now the govts are artificially pressing the short end rate yields down…it could be possible that funds are coming back into bonds with more instability to come and economic meltdown to persists.
-  ECB rate confirmed to remain at 1%, unemployment 9.5%
-  USA unemployment 9.5%
-  Australia to continue to maintain its rate without hiking as trade deficit doubled ! in recent report… exports dropped significantly with the global slowdown
-  10 year Note yield $TNX, 10yr 3x Bull and Bear TYD, TXO, or 2.5x Bull Bear Fund DXKLX, DXKSX…
     or TBT ProShares Ultra Short 20+ Year Treasuries (price of bonds down these things   move up)
-  30 year US Bond Yield and Price- $TYX and $USB within www.stockcharts.com or yields can be found at  http://www.bloomberg.com/markets/rates/index.html

CHAIN OF EVENTS
nothing new comes to mind at present
*note- the recent stock issuance statistically points to 10-15% decline in the markets in the following months

Previous Chain of Event effect- 
…….

INVESTMENT THEMES
based on investment ideals (buying when prices are very cheap – trading at very low prices, most likely driven by the current fear or very bad present outlook,… but only buying where the “value” that one buys would hold or grow. Then waiting for prices to move higher when the situation or perspective normalizes)
1. Natural Gas… trading at 18x ratio to oil… as opposed to the historical 6x or so… Gas is not getting the speculative funds pushing it up and at present suffers from the perception that with weakening economies there is less need for power and therefore gas. It is used in a large percentage of industrial power production. At under $4.00 it is priced under the marginal costs of production and no one will be selling more for less than they can produce it… though there is no news that will support the price at the moment, it is trading at historical lows and at a large discount to oil prices… buy at the worse points when things are looking their worse and prices are at record all time lows and wait for things to turn around.*search for Natural Gas within this blog for more info on NatGas.
2. NZDAUD trading at under 80c… it ranges from 1 NZD buying 95c AUD to recent lows 1 NZD buying only 78c AUD… longer term historical range (15 years) shows 75-95c ran

RISK: Major issues to watch out for
1. Eastern EU states like Latvia, Hungary or something similar to default leading to a Western EU state to crash… ie Sweden who has loaned billions to these Eastern States.
2. GBP or other major currency crisis – Jim Rogers has forewarned this as a possibility within the next 6 months

Oil rallies: as passive investors increase their holdings

Big pension and endowment funds that invest in commodities by modeling their exposure on popular indexes have increased their purchases of crude rapidly in recent months, an analysis of regulatory data shows.

This stake has likely contributed to the doubling in oil prices this year, a swift advance that has brought the role of financial speculators back onto the radar of policy-makers — some of whom say financial investments in commodities should be curbed.

Passive investors increased their crude-oil holdings to the equivalent of more than 600 million barrels in June, up more than 30% from the end of last year, a MarketWatch analysis of Commodity Futures Trading Commission data and the most popular commodities indexes shows. See detailed description of MarketWatch’s findings.

 
Over the same period, crude futures have jumped 60%, topping $70 a barrel in early June on the New York Mercantile Exchange. Oil rallied 41% in the second quarter alone, the biggest three-month gain in 19 years, even as energy agencies forecast a second-straight yearly decline in global oil demand this year.

The correlation between rising oil prices and increased index investment has reawakened calls to restrict the ability of financial investors to take large stakes in commodities.

Unlike in past decades, though, shadowy hedge funds and secretive financiers aren’t getting the major blame. Instead, it’s long-term investors like California’s biggest public-employee pension fund and Harvard University’s endowment that have gradually widened to include assets beside stocks and bonds.

The makeup of this new class of commodity investors means some of the same people feeling the pangs of sharper gasoline prices also are getting an indirect benefit from their retirement funds’ bets on commodities.

“They are looking after the interest of retired teachers and doctors and other people,” said Tim Guinness, chief investment officer at the $500 million Guinness Atkinson Global Energy Fund (GAGEX 20.64, +0.10, +0.49%) .

Big index investors have moved into commodities as a hedge against inflation and a weaker U.S. dollar. But their combined weight is so large that they risk having an outsized impact on prices they aim to simply follow.

“Institutional investors such as country funds and pension funds are basically pushing prices where they shouldn’t go,” said Steve Briese, author of “The Commitments of Traders Bible.” MarketWatch used a supplement to the CFTC’s Commitments of Traders report to calculate index traders’ holdings in oil positions.

New momentum

The rise in prices and index investment comes as the Obama administration campaigns for a new legislation to overhaul the financial system, partly by tightening regulation in opaque over-the-counter markets and complicated derivatives trading.

A Senate investigations panel led by Sen. Carl Levin, D-Mich., last week released a 247-page report saying index traders have made large purchases on the Chicago wheat-futures market and have pushed up futures prices over the past few years.

On Tuesday, Rep. Peter DeFazio, D-Ore., introduced a bill that would give the CFTC new authority to prohibit “excessive speculation.”

The move to rein in financial investment in commodities reached a fever pitch last year as energy and food costs spiked. Then, as prices tumbled in the second half, momentum for a big legislative change dissipated.

Nevertheless, some analysts say there’s no solid proof that financial investors are driving up commodities prices. “We would argue that the reason most of these participants are getting into the market is due to the perception of tightening fundamentals,” said Doug MacIntyre, senior oil-market analyst at the Energy Information Administration, the statistical arm of the U.S. Energy Department.

The CFTC in September released a report showing index investment had no impact on last year’s rally in oil prices. The report, based on a special survey of swaps dealers, showed index holdings of crude oil declined in the three quarters ended June 30 while crude prices rose sharply.

The report was criticized by some analysts for inconsistencies, and CFTC Commissioner Bart Chilton said he had “significant concerns” relating to the underlying analysis.

A CFTC spokesman declined to comment further on index funds’ role in commodities prices.

Here comes the passive investor

Index investors like the California Public Employees’ Retirement System allocate a portion of their investments to tracking the performance of an index that includes a range of commodities

CalPERS, the biggest U.S. public pension fund, now has about $600 million in commodities that track the 24-component S&P GSCI commodity index, one of the two most popular commodities indexes.

Funds like CalPERS typically get their exposure to commodities by engaging in trades with big derivatives dealers such as J.P Morgan Chase & Co. (JPM 33.77, -0.29, -0.85%) and Goldman Sachs Group (GS 147.32, -0.12, -0.08%) . Trading between funds and dealers takes place over the counter and doesn’t get reported to the futures regulator.

These dealers, in turn, hedge their risk by taking a similar position in futures exchanges or other markets.

These derivatives dealers disclose to the CFTC how many futures contracts they are holding on regulated exchanges — such as the New York Mercantile Exchange and the Kansas City Board of Trade — to hedge their dealings with the index investors.

The weekly report, however, only covers 12 agriculture commodities such as corn and wheat. MarketWatch uses the CFTC data and publicly disclosed weightings of commodity indexes to estimate index investors’ oil holdings and total commodity holdings.

At the peak of oil prices last year, index fund holdings in oil had surpassed 700 million barrels. They then slid to near 400 million barrels in December. Index holdings in oil have since rebounded.

This analysis also shows that the dollar value of total commodity index investment rose more than 60% this year to above $140 billion.

The calculation, which was reviewed by CFTC Deputy Chief Economist James Moser, is a rough projection of index investors’ oil positions, and may underestimate the size.

A similar calculation is used by Briese and Adam White, director of research at White Knight Research & Trade. The calculation also was presented by Michael Masters, a fund manager at Masters Capital Management, to Congress last year.

Buy and hold gets blame

The growing presence of index funds in commodities has raised the hackles of some analysts and policy-makers because they take a long-term approach to investments that make them relatively indifferent to changing fundamentals.

“These passive investors do not trade on the basis of supply and demand,” said Masters, whose firm holds airline stocks, such as AMR Corp. (AMR 4.14, +0.12, +2.99%) and Delta Air Lines Inc. (DAL 5.85, +0.06, +1.04%) , that can fall when oil prices rise. “They are almost always buying, and their buying pressure pushes prices up.”

Firms like CalPERS dispute those charges, saying fundamentals rather than financial speculation has stoked prices higher.

Despite the link between index trading and oil prices, that positive relationship falls apart with other commodities. Natural gas, for example, has slid 30% this year even though index investors also increased their positions in the fossil fuel.

Masters’ views gained currency last year on Capitol Hill and may translate to another stab at restricting big brokers’ ability to buy futures contracts if oil prices keep rising, putting an expected second-half economic recovery at risk.

But oil prices themselves may derail this debate. Even if energy demand picks up along with an expected economic recovery, many analysts say oil prices have gotten ahead of themselves. Futures have doubled since February’s low. By contrast, in 2008 it took more than seven months for oil futures to gain more than 50% to their historic high near $150 a barrel.

Mark Gilman, an analyst at research firm Benchmark Co., said the current oil-market environment has a “strong and almost eerie resemblance” to oil’s boom during the first half of last year.

He anticipates oil could fall again to the $40 to $50 level. “Recent history is likely to repeat itself with a sharp price decline,” Gilman added.

Oil prices decline despite falling supply

Oil prices fell Wednesday despite another decline in crude supply, with lingering doubts about whether people and businesses will be using more energy anytime soon. Crude supplies have fallen in seven out of the past eight weeks, according to a government report Wednesday. Benchmark crude for August delivery fell 51 cents to $69.38 a barrel on the New York Mercantile Exchange.

In London, Brent prices rose $1.21 to $70.51 a barrel on the ICE Futures exchange. All major fuel futures fell on Nymex Wednesday, and gasoline led the way. Average retail gasoline prices have now fallen for 10 straight days. The Energy Department’s Energy Information Administration said in its weekly report that the massive surplus of oil in the United States continued to shrink last week.

Crude supplies fell more than some expected, losing 3.7 million barrels for the week ended June 26. Falling supplies are part of the reason energy prices have been rising for months, but that doesn’t necessarily mean energy consumption is rebounding strongly. Some of the biggest users of energy, heavy industry and manufacturing, have cut thousands of jobs. Many of the people who have lost jobs are no longer commuting because the can’t find work, meaning they aren’t using as much gas. Crude levels are falling, but not necessarily because more is being used.

Imports are falling. Crude imports over the last four weeks are down nearly 800,000 barrels per day. Oil exporting countries slashed production after the global economic downturn sent crude prices plunging from near $150 per barrel last summer to just above $30 per barrel by December. While prices have been surging for two months, a lot of that has been driven by money from Wall Street that is using crude only to hedge against inflation.

“There are some people, like me, who think ‘So, what if there’s less oil? There’s still plenty out there,” said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

OIL: Forget About Iran, Canada a Bigger Risk to Oil Market, Energy Trader Says

The eyes of the world are fixed on the election protests in Iran. Yet, while unrest reigns in one of the world’s largest oil producers, crude prices have actually fallen below $70 a barrel. Stephen Schork, editor of The Schork Report, says that’s because traders have already priced in the risk.

Get this: The big risk to prices, Schork says, comes from our friendly neighbors to the north. Canada is America’s biggest supplier of oil – most of it coming from tar sands. The problem, according to Schork, is that the Obama administration has taken “a rather belligerent stance” toward that supply because it’s not environmentally friendly. If the administration increased taxes on Canadian oil it “could be displaced…that will have an uplift to prices,” he goes on to say.

And, don’t forget the risk south of the border. Maturing oil fields, drug cartels and political instability in Mexico have the potential to drive up prices. If the U.S. doesn’t pay more attention to these risk factors, investment will continue to dry up and leave us paying more at the pump, Schork warns.

So while everyone is focused on geopolitical “hot-spots” like Iran, Nigeria and Venezuela, the real risk to crude prices may be much closer to home.

OIL

courtesy of Stockcharts.com

Oil for August delivery, the more-actively traded contract, was at $69.61 a barrel, down 41 cents, at 3:09 p.m. in Singapore.

“If we should stay below $70 for the August contract that should be a bearish sign,” said Astmax’s Emori. “The trading for today and tomorrow will be very important in setting the direction for the market.”

CFTC Data

Hedge-fund managers and other large speculators decreased their net-long position in New York crude-oil futures in the week ended June 16, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 26,430 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 21,453 contracts, or 45 percent, from a week earlier.

TREND: DOWN
Short term support was seen just under $70, if it break this level with conviction which it has, then we can presume the current uptrend is over for now (the current uptrend which began from around the $48-50 levels). Stronger support seen around the $60 level… any downward move might find some buying around those levels.

Crude prices have doubled in the last three months, hitting a high for the year of $73.23 a barrel last week before retreating. The rise in crude has pushed gas prices higher, hitting the wallets of consumers, who are now paying about a $1 billion a day for gasoline compared with $600 million at the beginning of the year. That impacts the amount cash-strapped consumers can afford to spend on discretionary items, threatening the nation’s economic recovery.

Gas prices were up for a 54th straight day Sunday, by 0.1 cents, to a new national average of $2.693 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service.

The recent run-up exceeds anything that oil analysts say they have seen since the 1970s. But the streak should end Monday or Tuesday, Tom Kloza, publisher and chief oil analyst for OPIS, said Sunday.

The Energy Information Administration reported that gasoline stockpiles grew last week by 3.4 million barrels, or 1.7 percent, much more than the 650,000 barrels that analysts had expected.

The bigger supply has pressured wholesale prices across the country, as demonstrated by a 10-cent drop to $1.93 a gallon Friday on the New York Mercantile Exchange. Prices on the West Coast fell 27 cents last week to $1.931 a gallon and were down 15 cents to $1.94 in the Chicago area that serves the upper Midwest. Those declines eventually will pass through to the consumer.

The question now is whether prices, which usually peak in the U.S. around the July 4th holiday, will backslide into the fall or if geopolitical problems in Iran and Nigeria will drive oil — and gasoline prices — even higher after a short dip.