Weekly Update: October 29, 2014

| October 29, 2014

Weekly Update: October 29, 2014


Big Picture Outlook:

Crude bulls are finally getting some good news…

First of all, the EIA’s weekly inventory report fell short of expectations this morning.  Storage levels for the week rose by 2.1 million barrels, which was below analysts’ estimates.

It’s important to note that oil inventories have risen sharply in recent weeks due to the onset of the refinery maintenance season.  Refiners are in the process of switching from summer to winter fuels, which requires capacity reductions.

When maintenance season passes, we’ll see inventories weaken, which will likely result in higher oil prices.

But here’s what really caught my eye…

The Secretary General of OPEC, General Abdalla El-Badri, spoke at the Oil & Money conference in London today.  Amongst other things, the General said “… oil prices will have to rebound to guarantee long-term supply”.

While he didn’t come and say it, this is the first warning sign that crude has dropped too low for OPEC’s tastes.  I have little doubt the oil cartel will curtail 2015 production in their late November meeting.

I’ll cover more on crude’s recent price action in the position updates…


Portfolio Highlights:

Just a quick note: I won’t update every open position every update.  I focus on the positions with significant news or price movement. 

. . . . ConocoPhillips (COP) January 16, 2015 $80 Calls

After a brief dip below $70 this week, COP is back on its way to higher ground.  Shares closed at $70.75 in today’s session and are poised for further gains if bulls return to the crude market in force.

Keep in mind, COP is scheduled to release third quarter earnings tomorrow morning.

COP already triggered our risk control line at $72.50 in early October.  As a result, only aggressive investors should be holding these calls for a rebound.

. . . . US Natural Gas Fund (UNG) January 16, 2015 $21 Calls

Mother Nature is not cooperating with us…

October has been unseasonably warm across large swaths of the US.  And according to the NOAA, warmer than average temperatures are expected into the second week of November.

Thanks to the lack of cold weather, natural gas sank to $3.56 mmBtu in recent trading.  As a result, UNG crossed our risk-control line at $19.25.  If you’re conservative, you may have already closed this trade for a slight loss.

If you’re aggressive, keep holding your UNG calls for a rebound.  If Old Man Winter shows up by the third week of November, we’ll likely have a strong natural gas rally on our hands.

Remember, we have plenty of time until expiration.  Our profit targets are $23.50 and $25.00 in UNG.

. . . . US Oil Fund (USO) December 19, 2014 $32 Calls

Crude bears took another shot at pushing oil below $80 a barrel earlier this week.  But as I suspected, buyers quickly stepped in to take the commodity back to higher ground.  As I write, WTI is trading at $82.22.

Hold your ground with this trade.  Our $29.75 risk control line has not triggered and we have plenty of time until expiration.  Our profit targets are $33.50 and $35.00.

Until next time,

Justin Bennett

***Editor’s Note***  Keep an eye on your email inbox.  I have a new trade scheduled to go out before the weekend!

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Category: Commodity Trading