Emini Trading: What does the current Oil Glut Mean

The average consumer, battered by several spikes in gasoline prices in recent years, is more or less convinced that the price of oil in going up to nearly unaffordable levels. This belief is not based on any certain fact, only past experience where prices have made gasoline an major dent in the average consumers budget.

So what does this have to do with the average emini trader?

Quite a bit, really.  While the long term price of oil may, in fact, be headed upward. In the short term we are faced with an oil glut of unprecedented proportions.  This phenomena is the result of lessened demand for oil at a time when the country already had unusually high stockpiled a surplus of oil.

Philip Verlanger, a veteran oil analyst states, "Downward pressure on oil price is so great that crude could trade for as little as $20 a barrel by years end.  For eight straight months, oil suppolies have  been running about 2 million barrels higher than the bloval demand of 83 million barrels a day.  The still sputtering economy has lessened demand at a time when there is alread a big surplus of oil."

He goes on to say, "This is the largest and longest contimuous glut of supply that I have seen in 30 years of following energy prices....It's a huge surplus.  There has never been anything like it."

With so much oil available and so little need for that amount, investors, oil companies and even some banks have bought and stored surplus oil everywhere they can. By one estimate, before oil surged to its high this year of $73.38 a barrel in June, as many as 67 supertankers — each capable of carrying 2 million barrels of oil — were being used as floating storage.

The price to store this oil surplus is running increasing high, and eventually companies will have to unload the oil rather than pay for it's continued storage.  That will be a great day for consumers, of course.

As an emini trader, I have attuned my radar to current oil prices and stand ready to enter a short position to take advantage of this expected move downward.  Of course, that position relies heavily upon the assumption that oil WILL move downward as burgeoning supplies become prohibitably expensive.

Think about it... does this set up a pretty nice short trade?