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Dennis Gartman: Egypt Premium Coming out of Oil

On Friday, chatter on the Street was all about the sharp move lower in oil after reports surfaced that Egypt’s President Hosni Mubarak could be stepping down.

Later reports suggested that earlier speculation was, in fact, unfounded.

Nonetheless, the chatter sidelined oil bulls with Brent crude futures falling below the $100 a barrel level and U.S. crude retreating below $90.

"The market is moving on rumors that Mubarak may fly the coop. If he leaves it may alleviate tensions," says Phil FLynn, analyst at PFGBest Research in a Reuters interview.

What should you make of it? How should you position now?

Instant Insights with the Fast Money trader

Esteemed commodity trader Dennis Gartman, author of the Gartman Letter, thinks the next move in oil will be lower, at least in the short-term.

”The (price) had been distended to the upside on concerns of a real collapse in Egypt,” he says. But now that events seem just slightly little less dire, oil has sold off. “I got out,” he reveals.

Specifically, he thinks there’s a change in psychology happening in the oil market.

And as a result he expects some of the Egypt premium in oil to come out. That leads host Melissa Lee to question, "how much of a premium exists?"

“In Brent there’s a $5-$7 premium and in WTI there’s about $2-$3 premium,” he says.

However Gartman tells us long-term he remains bullish oil. “Circumstances that started in Tunisia, and spread to Egypt and will likely make their way across the Middle East,” he says. That’s long-term supportive to crude oil.

Joe Terranova agrees. “Anybody who thinks that the situation is over – in the form of continued protests and potential supply disruptions – is making a terrible mistake,” he says.

However the usually bullish Terranova is skeptical of energy, right now but for reasons that have nothing to do with Egypt. ”I’m reducing exposure to energy equities because after the unemployment I didn’t like the price action.

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THE HIGHS OF THE DAY

Turning attention to the bond market, yields broke out to their highest levels in about 7 months after the jobs report showed the best increase in average hourly earnings in a year; investors took it as a sign of inflation.

What’s the trade?

I expect to see bond rates continue to move to the upside, says Jon Najarian. The action suggests investors want a greater reward to commit to longer term paper.


TAKE YOUR POSITION: CISCO

Ahead of earnings next week, the fast desk is watching the action in Cisco .

How should you position?

Calls are out-trading puts by a ratio of about 3-1, says Jon Najarian. It seems there’s a lot of speculation that the stock could break out.


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Trader disclosure: On Feb. 4, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Joe Terranova owns (VRTS), (C), (UPL), (GM), (PEP), (MS), (LTD), (CVI), (CVE), (SU) and (CNQ). Steve Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LIT), (LPX), (MT), (MHY), (NDAQ), (PFE), (PRST) and (S). Jon Najarian owns (AET), is short (AET) calls. Jon Najarian owns (AKAM), is short (AKAM) calls. Jon Najarian owns (BX), is short (BX) calls. Jon Najarian owns (CAM), is short (CAM) calls. Jon Najarian owns (JNPR), is short (JNPR) calls. Jon Najarian owns (MON), is short (MON) calls. Jon Najarian owns (ONNN), is short (ONNN) calls. Jon Najarian owns (RAX), is short (RAX) calls. Jon Najarian owns (RSH), is short (RSH) calls. Jon Najarian owns (SVU), is short (SVU) calls. Jon Najarian owns (WMT), is short (WMT) calls. Jon Najarian owns (X), is short (X) calls. Jon Najarian owns (CVA) calls. Jon Najarian owns (ELN) calls. Jon Najarian owns (APC) calls.
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JOE TERRANOVA
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DENNIS GARTMAN
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TODD JORDAN
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