Battered Crude II - By Aaron Hoddinott

Happy New Year to all of you! I think it’s safe to say no one will miss 2008.

The price of oil has risen sharply since I last wrote you on December 19th stating this would happen. Since the 19th oil has risen almost 24%, making it the highest commodity gainer in that two week time period. As oil attempts to stabilize above $40 per barrel, the stories surrounding the black gold are increasing significantly.

The war going on between Israel and Hamas is one of many reasons the short speculators have turned their bets long. A lack of confidence in the US dollar is another reason why shorts are getting killed. The most significant reason is Russia cutting off natural gas supplies to its western neighbor, Ukraine, for the second time in three years. Why is this significant? Because Ukraine supplies Europe with 25% of its natural gas. Many European countries don’t deal with Russia so they have established Ukraine as a middle man, therefore not losing the goods from Russia, but not dealing with them directly. When the news broke on Wednesday about this story, oil spiked. It went from roughly $39.00 per barrel to $44.50 in a matter of two hours. This was after a miserable energy report, showing soft demand from consumers.

We have soft demand, but a story breaks on a supply cut in Europe and oil spikes. This tells me two important facts:

1.) People believe demand will pick up.

2.) People believe we will have supply issues down the road; a sign for me to stay long and look for entry points on down days.

When a decrease in demand is ignored because of the potential of