Crude Oil Implosion Right On Schedule

The old rules of thumb about the oil markets have been turned on their heads. If it escaped your attention, for the last few years, wisdom that summer carries with it higher prices from more demand have been great…if your goal is to lose money.

Because what has actually been happening is each year, the summer brings with it renewed fears about the sustainability of the recovery, and as the winter optimism from holiday activity slumps, something – maybe speculative buyers in the oil markets, maybe something more complicated than that – slackens and all of a sudden, we get this big rush of inventory that floods our storage centers.

And anyone caught calling plays from their grandfathers old book goes long oil at exactly the worst possible time.

The thing is, for whatever reason, it always seems to get bought towards the end of summer, right when the rule of thumb dictates that oil demand should be falling. Maybe it’s all part of a game. Maybe there’s some reason for it I just don’t understand – I guess having selloffs in the winter months are always more dangerous; what happens if something important, like heating, gets disrupted?

I may not know why this is happening, but I don’t need to be an oil industry expert to know what my eyes are telling me.

SCO is spiking up 5% today, and oil inventories are building quickly. For the moment, everything is just peachy in the markets – actually, in the same day I’m up 5% shorting oil, the rest of my holdings are all largely green.

But it won’t last. We are on the cusp of a nasty selloff that will bring some humanity back to investing and some shame back to the arrogant.

And it will be treated as the end of the world. Or at least until the fall, when buyers likely step back in, claiming “no way that happens ever again…”