Russia and OPEC Not Likely to Meet in February: ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO)
On Friday I warned about the aggressive up move in oil and I discussed two possible scenarios. One addressed the possibility of a combined 5% cut, and the other, which I also addressed this past weekend, concerned the reality that there would not be a combined meeting between Russia and OPEC.
In that Friday warning I also addressed the risks and suggested that ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO) could fall fast towards $8 if that meeting was not going to take place as the media portended.
Over this past weekend I also sent an email that added clarification, and I gave you an easy way to find current news on Oil using the algorithmic tools that I created (Home page - drop down - oil - click logos).
I further referenced what the news items found.
- The 5% cut was suggested by Venezuela, not OPEC itself.
- Venezuela would actually be meeting with Russia and OPEC separately.
This is meaningful because Venezuela has little influence, and they have been petitioning for a very long time. It would require Saudi Arabia to come to the table for it to mean anything. The Saudis are willing to participate in something, but this was not their idea, and there does not seem to be any meeting planned between Russia and OPEC.
I do understand that Russia may meet with a few smaller players in addition to Venezuela, namely Oman and Abu Dhabi, but not OPEC and not Saudi Arabia.
There is a good news and bad news here.
The Good News is that the wheels are spinning. In business, one thing is always clear, as we all know, and that is if we sit on our hands nothing gets done. We need to get out there and pound the pavement to get things done, and in many ways the action we are seeing now is akin to 'PICKING UP THE PHONE!'
THE BAD NEWS IS NEAR TERM IN NATURE
They rallied oil on the media's erred interpretation of the Russian comments, so the logical reaction of traders is to believe that will all be reversed. That's already started.
Now, they all know that Venezuela's meetings are happening early this week, so if something surprising happens and Venezuela is actually able to get something done now, which no one really believes will happen, oil can spike right back up, so they are not throwing everything at the trade, but as far as traders are concerned the higher probability is for Oil prices to fall back towards their lows.
The good news is that the wheels are spinning, so we are closing in on a bottom, and the bad news is that the next leg may continue down and we may actually see lower than $8 from UCO.
The other side of that trade, by the way, is Proshares Trust II (NYSEARCA:SCO).
My observation given the admonitions that have hit the market is that we could easily see a 6 handle again. That's roughly a 20% decline in the near term from UCO, but my 3-year target remains the same.