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July 07, 2011

President Gutsy Call Foiled Again

Yesterday the price of a barrel of crude topped the market price at the time the Strategic Petroleum Reserve release was announced. "Coincidentally", CNBC.com put up a piece up entitled Did Markets Know Obama Was Going to Tap Oil Reserve?

Dennis Gartman, a hedge fund manager and author of the widely followed “Gartman Letter,” constructs a timeline of how the oil release came to be and the trading action surrounding it.

He notes the most recent peak of oil on May 2, discussions with Gulf oil ministers on May 5 as the price started to decline, and the ultimate announcement seven weeks later, when oil was around its near-term bottom.

The price drop leading into the SPR release indicates that the market may have been anticipating the move and selling oil accordingly.

Now that's interesting. We posted on the SPR rumor on June 9th, a full month after the market top but right about the time the price really started contracting. It's not like this was any great secret.

Of course, the breathless reporting of the brilliance of the SPR release is looking pretty foolish right about now.

“Arguably the timing of the release is genius,” said Stephen Weiss of Short Hills Capital. “If the SPR had been released as crude worked higher, the effect would have been relatively momentary, but releasing it now, with the momentum on crude prices turning down, will add to the price decline as speculators hit their stops and margin limits more quickly forcing them to sell.”

Once again, for the Short Hills bus, the release of a couple of days' worth of US consumption from the SPR has a negligible effect on the price of oil. At best.

Meanwhile, presuming we got market price for the oil at the time of the release and replaced it today, we'd have sold low and bought high. If the government was a business, that would be really bad for its profits to earnings ratio. Or so I'm told.


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posted by Andy at 08:45 AM

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