Terror fears draw buyers of crude oil
Crude oil has gone my way over the past few days. But now I've changed my tune on how to trade black gold.
If you watch "Futures Now" or read the blog, you know that last week I was a seller of crude oil. I sold crude futures at $108.20, with a target of $105.00 on the downside. But even though we did see a healthy drop, I have since covered my short position and am now long.
Why have I switched sides?
I changed my mind as a result of the terror alert. U.S. intelligence officials say al-Qaeda appears to be planning an attack against unspecified targets, and U.S. embassies and consulates in 19 countries in the Middle East and Africa have been closed as a result. According to government officials, this is one of the most serious threats since 9/11.
In my view, it is not prudent to be short oil at this time, as the embassies that have closed are in the richest oil-producing region in the world. If there is some sort of attack, whether in the United States or overseas, you could see crude bounce to $110 in a matter of minutes.
So even though crude has become overheated from a fundamental standpoint, I have learned from my 20 years in these markets that when geopolitical issues come to bear, the crude oil fundamentals take a back seat.
I am now long crude at $106.10 and have placed a stop at $104.80. My target on the upside is $108.00—but of course, if something happens, we could see prices climb much higher.