Oil Trade Makes a Lot of Sense

 | Jul 10, 2013 | 1:01 PM EDT  | Comments
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Oil is the hard commodity that people are playing for a global rebound now that the other commodities have been shot to hell by too much supply. This theory is something that Dan Dicker espoused here and in some crackerjack videos that we did (all our videos these days are crackerjack.)

The oil trade makes a lot of sense. You can't spec in aluminum as we know from Alcoa (AA). We don't want to be in iron. Copper struggles to hold $3. The grains have gotten pathetic with this bumper harvest. So that leaves oil as the physical trade that these big institutions want to have on as part of a commodity allocation. Almost every institution feels that it is imperative to have some sort of commodity allocation and this is about the only one available that isn't crimped by too much supply.

A few things are more than certain from this move.

First, the endless attempts by the media and the trading jackals to say that oil was a function of the dollar has been revealed to be totally fraudulent, as I said a gazillion times only to be greeted with endless guffaws by that too-smart-for-their-own-good cohort.

Second, the domestic price was wrong. It was all about Cushing. You get those pipes and you get those trains and, voila, we are at the same price as everyone else. So much for the margins for the refiners that have now returned to their endless cutthroat margins.

Third, this should hasten the shift to natural gas trucks that the customers want. Take a look at Procter (PG) saying that it wants nat gas for 20% of its deliveries. I have always held that the only way you would get the truckers to shift was if the clients demanded it because the truckers pass through fuel anyway. The clients don't want their prices going up because of fuel and nat gas is the long-term answer to keeping it down.

Fourth, we obviously have no energy policy at all because the president can't possibly even utter any support for fossil fuels in any form. Does he intend to delay Keystone to the next president? Would that surprise you? Only Keystone can keep the domestic price down a bit and perhaps prolong a recovery. Needless to say, the pipeline companies are the biggest job creators in the United States but, again, because they are fossil fuels, the president can't endorse them and the Labor Secretary is all about Green jobs. It's a religion, not politics.

Finally the demand isn't just financial. Our economy is getting better. We are using more oil. The price of gasoline is going up because there is real demand as people get jobs, commerce gets more rapid -- have you seen the transports? -- and we get more comfortable with the idea that there are more trucks and cars on the highway than years.

In some ways, I fear the president is really getting his wish. Higher prices are a tariff on drivers and people will use less energy, which is his real stated goal. I just think it's a pernicious one because the people who bear the brunt of the higher prices are the working poor and they, not the rich, are the ones sacrificed on the altar of the Greens.

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