Hey there, Power Profit Traders!
Before we get going on today’s Power Profit Trades, be sure to tune into Money Morning LIVE at 8:30 a.m. ET each day, and stay for my Power Profit Trades program from 9:30-10:30 a.m. ET right here.
The question of whether or not Bitcoin would move with the markets has been answered. But we also hit some crucial longer-term support… and I just got a new Buy signal that I will be sharing more information on — it all starts at 9:30 right here!
OH, and save the date for a SPECIAL LIVE SESSION at 9:30 a.m. ET this Thursday, Dec. 9, where I’ll be taking a deep dive into what could be the Crypto Trade of the Century…
And while I discussed gold on today’s Money Morning LIVE show, in today’s Power Profit Trades newsletter, I want to discuss another commodity making noise right now: Oil.
Crude oil is the lifeblood of the US and global economy.
Oil provides the primary energy source for moving all of us and the supply chain of goods. And while US and global economic growth has been resurrecting the demand for crude oil and all of its refined and distillate products — that demand has led to a resumption in production.
Meanwhile, the past week has seen the new Omicron variant of the virus that is resulting in a scale-back in demand assumptions for the near term.
This has been setting up the drop in crude oil prices for both the US benchmark West Texas Intermediate (WTI) crude oil and the global Brent crude benchmark prices.
US WTI Price – Source: Bloomberg
With oil being such a heavy focus in the market lately, I thought today we’d take a deep dive into black gold and all its glory.
The Center of It All
Cushing, Oklahoma, is the lynchpin of US pipelines carrying crude oil and storing it for shipping to refineries and further transport, including for marine terminals. It represents the single largest US storage for crude, at around 90 million barrels, as well as for other products.
Oil fields from around the massive shales of Texas and surrounding states — including the Permian Basin — all pump crude to Cushing from their gathering facilities on site.
And with the demand increases of recent months, inventories at Cushing have been dropping as crude is pulled into pipes for refining and export to an eager market.
But with the improved demand, US producers began to turn back on wells from maintenance levels to fuller production.
And for a while, that was working, as demand was outpacing supply. However, with expectations for demand dropping, crude prices — as noted above — have dropped heavily.
This in turn is now setting up a building of inventories in Cushing, reversing the drawdowns.
Cushing Crude Oil Stockpiles – Source: US Department of Energy & Bloomberg
This increase in stockpiles is coming just as overall US WTI prices are dropping heavily — making the spot price for crude at Cushing drop even more.
Meanwhile, the Organization of Petroleum Exporting Countries Plus Russia (OPEC+) agreed to increase production limits last week to 400,000 barrels per day (bpd), adding to global supplies — including for shipments to the US.
And while the Saudis have announced a minor price increase for US shipments over the weekend — the added supply is not going to be supportive for US prices for production shipped and stored in Cushing.
This set up a trade that, as of last night, was showing a 44% profit in the making for my Operation Surge Strike members. (For more info on that strategy, call our VIP Team at 1-888-384-8339!)
The Trade on the Cushing Glut
The United States Oil Fund LP (USO) is the ETF that tracks WTI prices at Cushing. This price tends to trade at a discount to overall crude, given the current glut of crude; this continues through to today.
But with the building stockpiles at Cushing, that discount should continue to deepen, as well as remain low with the overall crude oil price for US WTI traded at the New York Mercantile Exchange (NYMEX).
United States Oil Fund ETF (USO) – Price Source: Bloomberg
Our
Operation Surge Strike trade consisted of selling to open a near-term call on USO, at a strike just a few dollars above the current market price for the ETF. This was to take advantage of higher-than-usual
USO option premiums.
But for the safety of the trade, we also limited risk by simultaneously buying to open a call option a few dollars above the sold call strike, to protect against an unexpected rally.
This is called a bear call spread, and it’s an alternate way to bet bearishly on a stock or ETF, without shorting the shares or buying put options, like those who circled USO on Friday.
USO puts were popular – courtesy of TG Suite Morning Report
USO has fallen and should remain under pressure, as the supply glut in Cushing remains and more supply from OPEC+ is priced into the market. And, of course, demand is being dialed back, with the resurgence in the virus mess hitting the global economies.
So, kids, that’s your Power Profit Trades lesson for today! Be sure to keep an eye on USO, as well as the gold trade I outlined on Money Morning LIVE today.
And again, tune into this morning’s Power Profit Trades session at 9:30 a.m. ET right here! I’ll be talking about cryptocurrencies, among other things…
In fact, later this week, I’ll discuss how I’m setting up the trade of the century for you…
Make sure you’ve marked your calendar for my SPECIAL LIVE SESSION this Thursday, Dec. 9, when I discuss the most important developments for the cryptocurrency market.
The past couple of weeks have seen the coin market set up some incredible opportunities to buy, and I have put together the ultimate cryptocurrency trade of the century.
Have a great week!
Tom Gentile
America’s #1 Pattern Trader
