Schork Oil Outlook: $100 a Barrel? Not Really

$100/bbl? WTI is late to the party…

Here we go again… Nymex crude oil failed to trade at $100 yesterday in the electronic market, but that apparently did not prevent some yahoo down on the floor of the Nymex from buying $100 WTI anyway. To this effect, yesterday’s headlines screamed $100 oil, but the funny thing is, the market never actually traded $100. The market traded $99.95 on the screen, but it never hit that magical triple-digit mark.

Yesterday’s price path on the Nymex bears an uncanny similarity to the action seen in January 2008, i.e., the first time Nymex crude oil hit the $100 mark. The circumstances that lead to that initial $100 print two years ago were just as fishy as yesterday’s action.

Here’s what we had to say about it at the time…

Let’s be clear on this, Nymex WTI did not trade at $100 yesterday. Yes, some local on the Floor managed to get a $100 print on the Board. But that does not mean the market traded at $100. How do we know this? Because yesterday’s spike from 99.40 to 100.00 and immediate retrace back to 99.40 tells us so.

Our theory for yesterday’s price path goes like this…Feb’08 WTI was bid at 99.40 without an offer. When an offer for 100 came in, someone in the pit lifted it for 1 lot and then immediately turned around and hit the bid at 99.40 to get flat again. Why did he do it? Because it only cost him $600 to be able to tell his grandchildren he was the first person in the world to buy “$100 oil.” Heck, by now he probably already has his trade pad framed.

It’s only a theory, but it is a pretty good one. After all, if we were still down on the Floor that’s probably what we would have done.
- The Schork Report, Jan. 3, 2008

Unfortunately, this issue of whether or not WTI traded $100 yesterday is moot. By the time you read this, Nymex WTI will probably be trading above $100.

This leads us to ask, is $100 relevant? Our conclusion is, no, it is not fundamentally relevant. After all, the other key sweet-oil marker in the U.S., LLS, has been trading over $100 since late January. In other words, WTI is late to the party.

How high can WTI go? In the summer of 2008, in the midst of the greatest contraction in economic activity since the Great Depression, the Nymex got as high as $147.27. Therefore, analysts at The Schork Report are advising clients that there is no reason to think we cannot get back there… and beyond.

Yet, there is also no reason to think this event would not halt the global economic recovery dead in its tracks.


Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.