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What Is Going on With Crude Oil?

Jeff Macke

Up 15% since the start of July, West Texas Intermediate crude oil just keeps finding reasons to move higher. According to Jeff Kilburg, founder and CEO of Killir Kapital Management crude is due for a pause here but remains poised to move higher, much higher.

Though crude had been picking up steam for weeks, the former Notre Dame football standout says it was Ben Bernanke who "pushed it over the goal line" last week when traders took WTI over $100 a barrel. As is always the case in trading, particularly in commodity pits, big moves are subject to fast, vicious reversals on the road higher.

What had the bulls edgy yesterday was growing chatter that President Obama may tap the Strategic Petroleum Reserve, a time honored method for flooding the market with supply to drive down prices. While the Obama administration resorted to these means in June of 2011, they say there's no planned announcement coming, but all options are "on the table."

Kilburg thinks memories of capricious SPR releases from the past coupled with distortions from high frequency trading activities were behind the nearly $5 drop in WTI in the closing minutes of Monday's trading session. He speculates that one headline-trolling HFT program found an SPR headline and flooded the market with bearish contracts.

"Once one algo goes, all of them go," Kilburg notes with a shrug.

Not all the SPR releases in the world can hold crude prices back forever. Citing rising tensions in the Middle East, including U.S. military exercises and Iranian threats to shut down the Strait of Hormuz he thinks the easiest direction is higher, despite yesterday's late day pullback.

In Kilburg's mind any short term SPR drops are apt to be more than offset by organic tensions and endless saber rattling as Obama and Mitt Romney compete to see who can look toughest on foreign policy. "Like it or not we're going to see continued rhetoric really escalate before the election," he says. And if that noise turns into any sort of exchange of fire between Israel and Iran we could see "$140 in a click."