Much to the delight of consumers and economists, oil and gasoline prices have been steadily falling for the past five months. In fact, both petroleum products are currently showing double-digit decreases from their recent highs. It’s an occurrence that is not only being credited with helping confidence, but also with saving the holidays, since shoppers can spend money on gifts instead of gasoline.
But that could all change, says Bill Baruch, senior market strategist at iiTRADER.com, who’s in the midst of a year-end strategy he says works 8 out of 10 times.
“We like gasoline (RBZ13.NYM). We’re getting our clients in,” Baruch says in the attached video.
“If you buy (gasoline) in December and hold it through (first week of January), it’s successful 82.6% of the time. For us it’s no brainer with the seasonal play here,” he adds.
There are other factors that are keeping this Chicago-based trader, and others like him, on edge right now. Rising inventory data continues to reflect weak overall demand, which is due in part to a sluggish economy and simple efficiencies like smaller, more efficient cars.
And then there’s a logistical aspect to his trade too.
“There’s also a big issue with getting the oil to the refineries,” he says. “There’s not enough refineries. We haven't had a new refinery in 30 years. Refining the crude is the problem.”
And finally, Baruch says, most investors are celebrating a party that doesn’t even really exist by looking at the 13% slide in WTI or NYMEX crude (CLF14.NYM), instead of the 5% dip in the price of the more globally watched Brent crude (BZF14.NYM), which is still above $110.
“The reality is, everybody is focused on WTI (West Texas Intermediate). You have to focus on Brent. Our government even uses Brent as a benchmark. What’s really moving (things) is the Brent.”
As he sees it, even if OPEC holds off on trimming its output quotas tomorrow, high domestic production, and backlogged refineries will serve as a floor in the price of petroleum prices.
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