"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

Oil prices rose slightly this morning to $114/bbl after the EIA reported declines in its latest fuel inventories. Given this news, and the conflict between Georgia and Russia, we have to ask why isn't the reaction more bullish for oil?

1) The U.S. dollar continues to gain strength versus the Euro, Yen and British pound. The latest news from the European Central Bank suggests the next move in rates in Europe will be to cut. The slowdown in the European economy is making Jean-Claude Trichet re-think his strategy.

2) The Georgian/ Russian situation will cool down. The executive branch of the US government was up in arms over Russia's military actions in Georgia. Were they upset over military action and the killing of hundreds of citizens? No way! They were upset over a potential ramifications of the global oil supply. It so happens that the second longest oil pipeline in the world (Baku-Tbilisi-Ceyhan (BTC) pipeline) carries oil from Azerbaijan, through Georgia and Turkey to a terminal on the Mediterranean Sea.

If there was no potential oil disruptions in the region, we probably wouldn't hear a peep out of the executive branch.

3) China will continue to have reduced oil demand until the end of the Olympic games. See, to put their best face forward China is trying to reign in their incredible pollution (smog) problem by ordering 45 percent of Beijing's 3.29 million cars off the roads. In addition, several industrial plants around Beijing have temporarily shutdown.

4) Some demand destruction has taken place in the US as consumers continue to adjust what they drive, and when they drive.

5) Don't forget the election year magic that I keep referring to. Politicians like to pullout all the stops before an important election. Yes, this includes getting their friends to help push oil prices lower.

As we get closer to the end of Olympics and November elections, I'll be re-visiting the oil trade.

The Rest of the Story

Don't you find it odd that the rally in the financials ended yesterday, just as the SEC ban on a certain kind of short-selling expired.

The ban on short-selling took effect July 21 to prevent stock manipulation. I guess its ok to continue the manipulation again. Free markets? What a joke!