The US Strategic Petroleum Reserves will release 30M barrels of oil at base price of a little more than $112 (presumably, the barrels will be purchased by consumers of oil at prices lower than the base price). NATO has been “air striking” Libya since March. According to the CIA World Fact Book, Libya produces about 2M barrels/day of the world’s 89M barrels/day total production. Libya’s production accounts for about 2.5% of the world’s demand for oil. They produce a very high quality, light, sweet crude. Much of this Libyan oil goes to refiners in Italy that are set up to refine this specific type of crude.

I remain skeptical that the increase in the price of crude (WTI rose 10%-20% since the Libyan news broke out) was due to actual supply disruptions. The price of oil that we see quoted every day, is the futures contract for WTI (West Texas Intermediate). These futures markets are thin, computers and humans are the market participants, and generally, traders, not consumers of oil (the refiners, air liners, industrial co’s, etc.) control the day -to- day price movements (longer term, the consumers and producers should control the price if free markets work the way they are supposed to).

We, as a country, do NOT need to be depleting our emergency stocks of oil to get the price down at the pump before elections. We need to be encouraging increased domestic production of energy. The lower the price of oil, the less incentive there is for wildcat operations to get oil and gas out of the ground here in the United States. There are so many other ways to clear the weak hands out of the market- these are the traders that can buy futures contracts on margin. All the government needed to do was come into the open market, and blow out at-the-money strikes for the front and back month contracts with the SPR as collateral. We wouldn’t have had to sell any physical oil, and the cleansing of the market would have been quicker, and it could have been kept a secret.

The market is seeing through this short-sited ploy and trying to retest the lows from yesterday. Absolutely no follow through from yesterday’s afternoon rebound. Monday should be either a gap up, or a gap down. My bet is a gap down, but not with confidence, as the NYMEX 3-2-1 crack spread is breaking down today after a lower high made on 6-17-2011. This means lower gas prices at the pump, and that will be good for retail. It’s no man’s land out there- we’re not trending and we don’t know where the low is yet (the 200dma is holding so far, but isn’t that obvious? My guess is that it breaks on Monday). If you’re shorting, your a moron, because we’re more than 7% off the highs, and the odds don’t favor even more of a decline. If you’re buying heavily, you’re a moron because (get ready for irony) we’re only 7% off the highs, and who’s to say 10% or more isn’t in order after a double from the March 2009 low? And if you’re not buying or selling, then you’re just a spectator. Spectators are the guys that wish they were players. So we gotta do something. How about selling some calls against your remaining long positions if you have a hefty gain. I’m writing some covered calls against my CRM. I like the Jul 150 for $2. There’s a nice idea for a Friday in this miserable market.