Crude day in America - eye to eye, station to station, crude day in America - hand to hand, across the nation! Crude day in America - got to have a celebration! Another lesson in supply-side economics! The more supply you have and...

Oh boy do we have supply. The more supply, the more oil should fall. Our oil cup is overflowing, or at the very least the storage in Cushing Oklahoma (the delivery point for NYMEX crude) has crude supplies filled to the brim.

The Department of Energy reported another spectacular increase in oil supplies of 7.17 million barrels that overwhelmed small signs of demand  improvement and shows the highest level for crude stocks since July 20, 2007, a year ago when they topped 351 million barrels. Not only that, as David Bird of Dow Jones Newswires points out, we have 46 million more barrels of oil in storage now than we did just a year ago which is the biggest year over year surplus since Aug 10, 1990. A big rise in Cushing, Oklahoma seems to suggest that based on some estimates there is no place right now to put anymore oil. Some blame the surge in Cushing on a pipeline problem that kept supply from leaving storage but pipeline or no pipeline, supplies there are at a record high.

Still oil found some support on slight signs of demand improvement, Saudi Arabia and on the better than expected ISM non- manufacturing number as well. OPEC looks like it's trying to pre-empty their bearish effects of a rising inventory with more signals that they will try to cut production. The Saudis raised prices for their grades of crude, a sign that they are trying to discourage demand. The Saudis say they will cut 7%-10% cut in term shipments for January and 5%-15% for February. It is possible that the price increase means we may see an even deeper cut from the Saudis in March.

Of course OPEC had better cut based on supply. Not just the supply in Cushing but the record supply floating around in the ocean. In the Wall Street Journal Brian Baskin writes, Every time the oil market attempts to ignite a rally, an upsurge from the sea of crude stored on waterborne tankers snuffs it out. The accumulation of oil held in floating storage gained speed in December, as available space in traditional onshore storage hubs dwindled due to excess supplies. This floating storage is now among the biggest impediments to oil prices recovering any of the ground lost over the past six months. Companies are quick to sell cargoes at the hint of a turnaround, unleashing a flood of oil onto the market. More oil is being produced than recession-stricken economies need and prices have fallen as the extra crude fills storage terminals world-wide. Baskin says that, Tankers carrying up to two million barrels each aren't counted in official statistics. Ship trackers estimate that as many as 80 million barrels may be on the water, or more than twice the amount kept in the largest commercial storage center in the U.S., in Cushing, Okla.

Yet there are two sides to every  commodity story, the supply side and the demand. And if you can look through that flood of supply we are seeing some sign of improvement.  The EIA showed that products supplied over the last four weeks at 19.5 million barrels per day, still down by 2.8 percent from last year but less of a deficit. Gasoline demand has averaged about 8.8 million barrels a day 0.5 from last year and again an improving deficit. Distillate demand has averaged about 4.1 million barrels per day over the last four weeks, down by 3.7 percent from the same period last year.

Yet oil cannot close below 40 because of fear and hope. On the fear side the market fears OPEC and fears systemic risk but also hopes that things might get better. Today we get the natural gas number and we will see if we get more signs of industrial demand destruction. Ultimately the energies need to make a final leg down before they should bottom. If the area that we are in is the bottom, then we might as well get ready for months of sideways trade which is also a possibility. We have been using three way trades and writing options to enhance our position trades. We have some clients who are boxing to oil as well which if you think we are going to range is the best way to play it.

Rock my soul, smokestack, fatback, many miles of railroad track all running on oil time! Thanks for all the interest in The Energy Report! Our readership has been soaring! Now because of the increasing readership some concerns have been brought to my attention about our publicly posted stops, feel free to call me for alternatives. As for all the e-mails I receive, I have been working diligently to respond to all of you from all over the world! If I haven't gotten back to you yet and you have been waiting, please email me again at or call me at 800-935-6487 to open your account. Your comments and insights have been invaluable! 

Still loving that short March crude from apprx 4354 on what is now a quadruple rollover! Lower stop to 5120!

Sell March heating oil at 15100 - stop 15600.

Sell March RBOB at 12900 - stop 13300.

Sell March natural gas at 500 - stop 520.