Why $110 is Like Kryptonite for the Oil Price

Crude’s getting slapped back into double-digits.

After briefly topping $110 just last month, the big oil rally faded fast. Monday marked crude’s first visit below $100 since July. And it didn’t stop there…

By yesterday afternoon, crude pushed as low as $96. That’s a 4% drop so far this week. And it brings us one step closer to my $90 target I set on Sept. 18.

WTIC Light Crude Oil - Spot Price, July 2011-Present

Since 2011, crude has sharply reversed every time it made a run toward $110. This year is no different. You can see on the chart where crude failed just above $110 in early 2011 and early 2012. We’re seeing very similar action this week after yet another go at the highs with no follow-through…

Here’s where we stand now:

Crude is hitting four-month lows as oil inventories hit their highest levels since June at 5.2 million barrels (that’s a rise of nearly 20 million barrels over the last month, according to The Wall Street Journal).

Meanwhile, U.S. crude imports have fallen off a cliff. This is where your opportunity lies. While the big, multinational oil companies continue to slip, domestic producers are setting up beautifully. Even with oil tanking, I’m still seeing constructive setups in these names.

After all, states like North Dakota and Texas have become the oil production giants of the world. In North Dakota, daily oil production has jumped 700% within five years — actually doubling between 2011 and 2012.

Regards,

Greg Guenthner
for The Daily Reckoning

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