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Potential Supply Disruption or Too Much Risk Premium, What Drives Oil?

On Tuesday energy traders were placing their bets as oil prices traded in and around an important key technical level.

Brent February crude rose 93 cents to $113.38 a barrel by 11:49 a.m. EST pushing back above its 200-day moving average, which was $112.70 on Tuesday, after slipping and closing below that level on Monday.

That’s significant because the 200-day moving average is considered a key technical level and the action calls into question whether that price level will emerge as a level of big support or resistance.

How should you play it?

“I’d stay long,” says seasoned energy trader Dan Dicker of Mercblock.

He thinks the technical are being driven by the growing geo-political tensions around the world. Dicker has crunched the numbers and he sees potential challenges stemming from a wide range of factors such as:

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- EU ban of Iran imports
- Nigeria protests
- Drop in biofuel production

Add it all up and we’re looking at the possibility of a big supply problem, he explains.

And that doesn’t even take into account the potential for increased demand if the recovery takes a foothold. “That will stay with the market – I’d play energy long,” he says.

Trader Steve Cortes is on the other side. “I’m short oil,” he reveals. Cortes argues that there’s just too much geo-political premium in the price already. “I’m willing to bet it’s all bark and no bite.”

What do you think? We want to know!




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Trader disclosure: On Jan. 10, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Terranova owns APC; Terranova owns OXY; Terranova owns XOM; Terranova owns VRTS; Terranova owns IBM; Terranova owns CSCO; Terranova owns AXP; Terranova owns SBUX; Terranova owns CSX; Terranova owns SWN; Terranova owns AXP; Karabell is long AAPL; Karabell is long XLF; Karabell is long IBM; Rivertwice is short AA; Karabell is long FCX; Karabell is long calls GOOG; Karabell is long calls AMZN; Cortes is long SO; Cortes is long XLU; Cortes is short Corn; Cortes is short Wheat; Cortes is short Crude; Cortes is short XRT; Cortes is short IYT vs. S&P long; Cortes is short QQQ;

Zachary Karabell
Rivertwice has short puts GS;

Patty Edwards
Trutina Financial is long QCOM
Trutina Financial is long INTC
Trutina Financial is long GLD
Trutina Financial is long PGM
Trutina Financial is long AA
Trutina Financial is long YUM
Trutina Financial is long MCD
Trutina Financial is long BMY
Trutina Financial is long JNJ
Trutina Financial is long AMZN
Trutina Financial is long AAPL
Trutina Financial is long GWW

Michael Pachter
No disclosures

Dan Dicker
Dicker is long oil futures and short call options

Dr. Anthony (Tony) Coles
No disclosures

Mike Vorhaus
No disclosures

George Davis
No disclosures

Deborah Weinswig
Gregory Hertz, CFA, CPA, Associate, holds a long position in the securities of Wal-Mart Stores Inc.
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