Thursday, May 22, 2008

Short covering rally?

This last move in oil does have the feel of a short covering rally. If so, it will be interesting to see where it settles out when it's over. $110 would be my guess for a floor, but that's a long way down. That price still makes oil companies a lot of money.

Bloomberg: Blame Wall Street for $135 Oil on Wrong-Way Betting.


Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.

The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.