One day after President Bush and the Saudi Royal Prince held hands and spoke, a government report showed an unexpected build up in U.S. crude oil inventories. Unexpected ? I have been telling you for the past few weeks to expect a surprise announcement about the Strategic Petroleum Reserves being full. Today, crude oil fell $2.59 to $51.61 a barrel on the New York Mercantile Exchange. Unleaded gas futures dropped 8.32 cents to $1.5419 a gallon.
While this is a good start, is this the catalyst I have been talking about? I don't know. The next few days will tell us a lot. A major catalyst will be the petroleum reserve announcement. That news will trigger a sell off in crude which should send oil prices to the $48-$49/bbl mark. Since most selloffs over shoot on the downside, I would expect oil prices to dip below $45 before stablizing. .
A drop in oil prices will temporarily calm inflation fears, and these two events should cause a big, but temporary rally in the stock market. We will use this rally to add to our short funds, and sell our remaining cyclical positions.
Some like to blame the Bush administration for the sky high oil prices, but it was the environmental policies of the Clinton administration that caused many refineries to shutdown. A lack of oil is not the problem (right now anyway), our current problem is we cannot refine enough gasoline to meet demand. Down the road, as China attempts to dominate the world (with our help), oil demand will be a big issue.
For right now, let's sit back and wait for the catalyst.
