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Pro Traders: Oil Prices Bouncing Back or Sliding to $75

With Memorial Day rapidly approaching it almost seems appropriate that the energy trade has landed squarely in the spotlight with the Street desperate for any signs of what’s to come next.

Oil prices closed sharply higher on Wednesday, however fist fights practically break out on Wall Street over whether the next leg in oil is higher or lower.

In fact, the schism between oil bears and bulls has now grown to levels unseen since oil prices peaked in 2008, according to Reuters monthly poll.

While bears cite weak demand and ebbing geopolitical risk premiums as reasons for oil to plunge to $75 per barrel, bulls see it soaring to $140 due to supply shortages and the limited ability of OPEC to cushion any new disruption.

It seems, both Goldman Sachs and Morgan Stanley have sided with the bulls. Both revised their price targets on crude, sending estimates sharply higher.

However, an AAA nationwide survey, suggests the bears have a strong case. AAA found that four of 10 travelers said gas prices have revised their Memorial Day travel plans, making trips shorter or if they must drive scrimping on hotels, meals and entertainment to make up for gas gouging, the survey found.

“Certainly there’s a strong correlation between propensity to travel and hotel occupancy,” says Patrick Scholes, FBR leisure analyst in a live interview on CNBC’s Fast Money. But with $4 gas he also says he’s not seeing a noticeable pullback on travel.

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

Instant Insights with the Fast Money traders

Trader Joe Terranova sides with the bulls. “Don’t follow the downward momentum in the commodities space,” he says. He thinks the right trade is either long or flat energy, but not short. Although Terranova is concerned that broadly the S&P may run into a rough patch in June, he counsels putting on trades in names such as CVR and Baker Hughes .

Fast Traders Tim Seymour and Karen Finerman are also bullish. Finerman’s thesis is simple. She believes that global growth will continue and as a result “the supply-demand dynamic should drive oil.”

Tim Seymour looks at demand out of China which chatter suggests could be diminishing. Although Seymour admits there may be declines, “I don’t think the thirsty dragon is falling off a cliff,” he says. If you’re looking for a trade, Seymour suggests looking at Halliburton or Baker Hughes. “The drilling space is becoming tight,” he says.

And if you’re looking for a broad commodities trade, Seymour thinks copper is an even better trade than oil. “Supply is even more constrained in copper,” he says.

Guy Adami sides more with the bears. He’s skeptical of the broader market, and as a result is skeptical of commodities. However, he says if the S&P closes above 1325, he thinks Caterpillar could run to $110.

Solidly in the bear camp, Petromatrix consultant Olivier Jakob argues that the high price of oil will be its downfall. In other words, high prices will cause demand to ebb.

"We expect to see in coming weeks more evidence in the statistics of oil demand destruction and this should maintain a strong cap on rallies," Jakob says in a Reuters interview.

"If the statistics confirm the demand destruction it will be hard to print higher yearly highs without a new significant supply disruption," he adds.

That’s a theme that Fast trader Steve Cortes talks about often. He expects the dollar to get considerably stronger and as a result thinks oil will go much lower. Cortes is turning bullish Walmart as a bet that lower oil and resulting lower prices at the pump are a boon for Walmart shoppers.

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ANALYZE THIS: RETAIL

Higher commodity prices are cutting into retailer profits across the board, with high-end companies like Ralph Lauren feeling the pinch to the same degree as a companies like Gap and Aeropostale , which sell their merchandise are more accessible price points.

What should you make of these developments?

Find out from retail analyst Brian Sozzi. Watch the video now!







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Trader disclosure: On May 25, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s “Fast Money” were owned by the “Fast Money” traders; Kinahan owns (AKS); Kinahan owns (CSCO), is short (CSCO) calls; Kinahan owns (F), is short (F) calls; Kinahan owns (GE) is short (GE) calls; Kinahan owns (MSFT) is short (MSFT) calls; Kinahan owns (NYT); Kinahan is short (SLV) through multiple options; Kinahan owns (YHOO); Adami owns (AGu); Adami owns (C); Adami owns (GS); Adami owns (INTC); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Terranova owns (XOM); Terranova owns (KSS); Terranova owns (CVI); Terranova owns (OXY); Terranova owns (TM); Terranova owns (BJ); Terranova owns (DIS); Terranova owns (PFE); Terranova owns (V); Terranova owns (HPQ); Terranova owns (FLX); Terranova owns (JPM); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (VRTS); Terranova is short (DELL); Finerman and Finerman's firm own (AAPL);Finerman's Firm owns (BP); Finerman's Firm owns (CAT) calls; Finerman owns (C); Finerman's Firm owns (IBM); Finerman and Finerman's Firm own (JPM); Finerman's Firm owns (JPM) Leaps; Finerman and Finerman's Firm own (MSFT); Finerman's Firm owns (TGT); Finerman owns (UNG); Finerman owns (USO); Finerman's Firm is short (IWM), (SPY); Finermna's Firm owns S&P 500 Puts; Finerman's Firm owns Russell 2000 Puts


For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
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