Oil: Major Short Squeeze Around the Corner?

Friday, October 9, 2009

Crude oil just had the biggest weekly drop since the Persian Gulf War in 1991; since November 28 alone, oil is down 25 percent. Quite a drop.

The sentiment in the oil pits is that “It’s all about the economy” and “There’s not much that can be done right now to keep prices from falling off a cliff”. Major pessimism is set in and Merrill Lynch is even predicting 25 dollar oil.

For all that I can see, conditions are set for a major short squeeze in the Crude Oil Futures. Prices have dropped 72 percent since reaching a record $147.27 on July 11, so a short squeeze could take us to 60 or 70 dollars in a nutshell. At this time, technical analysis and fundamental analysis are saying “SELL” but the selloff is probably overdue. As Rockfeller used to say “the time to buy is when blood is running on the streets.”

What the catalyst might be for this short covering rally? Maybe OPEC, maybe nothing. OPEC`s President, Chakib Khelil, recently commented that no decision on the output cut has been made yet but it would be severe. Oil might trade in the 60s before the end of the year.

This article was originally published on Seeking Alpha.

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