Monday's Oil Mess: Rent-A-Rebel Jacks up Prices into the Holiday

Rent-A-Rebel to the rescue!  

That's right, whenever the oil market needs a lift, there are hundreds of reliable groups of kids with guns and outboard motors who are able to shut down oil production and transportation around the World.  This week, with just 5 days to go until the contract rollover on Friday and 239M barrels of fake, Fake, FAKE!!! orders piled up at the NYMEX, the best way to boost interest in the contracts you are dumping is to funnel $50,000 to some starving teenagers and promise another $50,000 if they can interrupt the oil supply enough to get you an extra Dollar for your $239M barrels.  This week, it's a brand new group in Nigeria driving up prices by issuing this ultimatum:

The Niger Delta Avengers is giving two weeks ultimatum to all oil companies in our region to shut down and evacuates their staff. To international oil companies, this is just the beginning and you have not seen anything yet. We will make you suffer as you have made the people of the Niger Delta suffer over the years from environmental degradation and environment pollution,” the group said in a statement signed by spokesman Mudoch Agbinibo.

If at the end of the ultimatum and you’re still operating. We will blow up all the locations. It will be bloody. So, just shut down your operations and leave,” it added.

That was just what the oil bull doctor ordered and oil blasted up from $46 to $47.25 (2.5%) on that "news" completing the exact 5% move from $45 and right back to our shorting range at $47 (if it crosses back under).  While a small group of students "incapacitate" dozens of multi-Billion Dollar energy firms and their extensive security forces (and if so, what hope is there against terrorism), the reality is Nigeria is still putting out 1.7Mb/day of crude, 800,000 of their peak capacity, which isn't nothing but only 1/3 of the 3Mbd global glut we're in at the moment.  

No, this is all theater to drive gas prices up 0.20 at the pump into the holiday weekend, the busiest driving weekend of the year and 0.20 x 200M cars (just the US) x 10 gallons is a $400M bonus for the US energy cartel alone!  Globally, it's a $2Bn bonus from the timely action of the young rebels and, even more interestingly, it's coming at the same time as oil producers are maxing out their short positions (hedging) - selling more forward oil at $47 than they did when it was over $100!  

I'm sure it's just a coincidence.  That's what the apologists would say because who would pay someone $100,000 to make $2Bn?  That NEVER happens, right?  Nigeria, however, is just the icing on the cake as we also had the oil sand fires in Canada shutting down production and, much more serious - Venezuela, one of the World's largest oil producers, is descending into chaos - something that threatens all of their production.

Unlike Nigeria, Venezuela is a textbook case of the Saudi policies working as low oil prices have broken the Government there and the country can't even afford to power the oil rigs that make them what small revenues they have been able to generate.  The country has also been hit by drought and there are widespread shortages of food, goods and medicine and, because the Socialist nation is considered a "National Security Threat" to our own, beloved Corporate Klepocracy - the US does not lift a finger to help them.

All this madness is right on our doorstep and yet the MSM pundits wonder what investors could possibly be nervous about.  They Olympics begin on August 5th and that's right around the corner and Brazil is another state that's faltering, with their President currently undergoing impeachment proceedings.  As attention turns to Brazil and their even poorer cousins to the North, don't expect investors to be BUYBUYBUYing this summer (other than gold, which just hit $1,290 this morning).  

We're certainly not complaining about the move in oil this morning as we were one of the ones adding to our oil longs last Friday, at 1:26 in our Live Member Chat Room, where we added this trade idea as an ultra-long oil into the July 4th weekend:

USO/Pat – Well, UCO is an ultra-long on oil at $11.86 with oil at $47 and the July $10s are $2.55 and the $11s are $2 so 0.55 for that spread and you can sell the USO July $10.50 puts for 0.40 ($145 in margin) to knock the basis down to 0.15 on the $1 spread. 

So now, instead of needing USO to go to up 0.65 (5%) to $12, you just need it not to fall $1 (8.5%) to $10.50 and that keeps your risk under $15 per spread.  On the UCO side, it's at $11.85 so that spread is 0.85 in the money for a full payoff and anything over $45 oil should give you a nice profit into mid-July, where we expect oil prices to peak. 


Keep that in mind if you are playing oil short here (/CL) at $47.40 (stop over $47.50 for a $100 per contract loss) - we're mid-term bullish on oil but we don't think this news justifies a 5% bump in prices and our 5% rule tells us that the run from $45 to $47.40 ($2.40) will retract back to $47 (weak) or $46.50 (strong), even if we are going higher.  We may pop up to $48.50, which would be $50 on Brent (/BZ) first and then we'd be looking for retraces back to $47.75 (weak) and $47 (strong) - we'll see where the profit-taking kicks in.  

Speaking of little or no risk - I did a nice Educational write-up on Dividend Trading over the weekend, you can view it here.  

Another stock we went long on Friday was AAPL, where we flipped our positions aggressively bullish in all of our Member Portfolios.  It was also sent out as a Top Trade Alert for the day and Warren Buffett was so excited about my calling a bottom on AAPL that he bought $1Bn worth of it!  Warren and I loaded up on Carl Icahn's shares as he dumped out of his position - thanks to all of you who sold AAPL under $95 - it's been quite the gift!   You can still get a good price on our May 4th trade idea from Money Talk.  

This spread costs you just $4,000 in cash and $8,000 in margin for this $30,000 spread so the upside, at $120 is $26,000, a 650% return on cash in 19 months.  There aren't many stocks I like enough to pull the trigger on in this choppy market but we went in heavy on AAPL on Friday and today we thank Buffett for announcing the same - as the stock should catch a nice bid this morning.

Not only was China's data bad over the weekend but, as we noted in our weekend news discussion, it turns out that the "bullish" Retail Sales Data only SEEMED so due to a massive seasonal adjustment that flipped the data from -0.9% (in constant 2015 terms) to +1.3%, which is why the report was so shockingly different from all the numbers that have been reported by retailers in their earnings reports. 

I wish I were making this stuff up but yet, that is the level of manipulation going on in the market these days.  They did this last year too when they needed a pop but this is getting downright scary because you don't tell lies this big unless the truth is something REALLY TERRIBLE!  

Speaking of really terrible things - the Empire State (NY) Manufacturing Index came out this morning at -9, which is 150% lower than the +6.5% predicted by leading economorons.  New orders were -5.54 vs +11.14 expected and shipments were -1.4 vs +10.17 expected.  What really cracks me up is how they bother with the second decimal place in their predictions when they can't even come within 10 on the whole number - this is why we call them Economorons.  

Just 4 Fed speakers this week surrounding the minutes on Wednesday and not very exciting data so we'll be focused on earnings and Friday's kick-off to the G7 meeting where, finally, they will give permission to Japan to manipulate the Yen further - so look forward to that fun either next weekend or the weekend after that.  

Now that earnings have calmed down, we can begin to make a few earnings plays on the stragglers and Cisco (CSCO) goes Wednesday night and they are one of our favorite dividend stocks (see weekend post) and Dicks (DKS) should do well on Thursday morning as they've driven Sports authority out of business but maybe not this Q yet, as the Bankruptcy Sales at SA stores may be hurting DKS's margin for now. 

It's going to be a very interesting week, we'll see where the oil madness ends but rising oil this morning will lift the energy sector and the Financial stocks who lend them money as hope springs eternal that this Fake rally will be sustainable.  On the whole though, it's still Monday - why do we even bother?