Watch for Oil spike tomorrow as traders on the long side will likely hold positions regardless of build or drawdown in crude inventories. A drawdown will only add fuel to the fire leading to ferocious short covering and further momentum buying, and a build will do nothing more than provide a very shallow intraday dip for sidelined longs to add to/initiate positions. Watch for any dip to be met with strong bids, pushing spot prices well into green by close.
We are well beyond waiting for weekly inventory data to validate supply/demand imbalances at this point, and are now trading on pure technicals with a solid fundamental backdrop of rising inflation (just take a look at todays 1% PPI reading + USD making all time lows vs. euro + all time highs in wheat prices + Gold on the verge of clearing $1000/ounce). Our next near term target in Oil is now $105 which I expect to hit this week, and our $107-110 target (as outlined in our Feb. 10th blog) is right around the corner. Also note that gasoline prices are now rising in tandem with crude prices adding further pressure to an already cash strapped consumer. Here in southern california gas prices are approaching $4.00/gallon!
Watch for equity market to begin taking +$100 Oil very seriously now as uptrend in all commodities continues to gain steam adding further validation to ultimate US stagflation scenario.
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