Something astonishing happened yesterday…Oil trading was thin all day. The price barely moved. Then, in the very last hour, BOOM!

In that tiny window of just 60 minutes, the price of the black stuff made a record jump.

Now more than ever I’m encouraging my Smart Commodities UK readers to load up on our targeted oil plays. There are two in particular. I’d very much like to tell you about them.

First though, let’s look at what went on yesterday and more importantly, what caused the mayhem…

How the biggest oil price surge in history “came out of nowhere”

The first thing I do every morning when I get into the office is check what’s been going on with oil futures contracts overnight… this morning, what I saw caused my jaw hit the Bloomberg terminal.

The price of a barrel jumped $5.49 to $127.79… at the very end of yesterday’s trading.

Now $5 doesn’t sound a lot… but in the trading pits it is huge. To give you an idea of the enormity of this event it is the biggest one-day move - in dollar terms - in the history of the oil markets.

Not even during the Second World War, the 1973 oil crisis and 9:11 was there a bigger hike within 12 hours of trading.

And what’s more astonishing, reports from the Nymex trading it revealed no-one knew what caused it!

One journalist called the final hour of put trading on the futures exchange “hysterical” with the surge coming “out of nowhere”.

There was no new oil data released that could have sparked this… there was no news on supply or demand.

So what prompted oil future contracts to make one of their biggest one-day price jumps EVER?

Two factors that defy logic

Well, a number of new factors have entered the oil market over the last week.

First there is the prospect of warm weather in the US. Americans love their air conditioning and a demand surge is ahead if the temperature rise.

Less than 5% of homes in Europe have air conditioning, compared to 85% in Japan and 65% in the US. The energy consumption of air conditioning units is often overlooked, but it’s actually a massive factor.

It is one of the reasons I reckon the high oil price is not going to curb US demand by as much as some oil bears believe.

Can you imagine working in an office in Phoenix, Arizona without aircon? There’s no way employees will switch it off. Demand is not all about gasoline use and driving miles.

Indeed, according to the US Environmental Protection Agency, about ONE-SIXTH of all the electricity generated in the US is used to cool buildings. This is often overlooked; and it shouldn’t be.

However, the prospect of a warm spot in the US is unlikely to cause such historical price movements in these contracts, so I reckon we can dismiss that factor.

Then there’s the added risk now we’ve entered hurricane season. This risk is impossible to quantify and I do not believe that it is responsible for yesterday’s jump. It defies logic.

The truth that US traders don’t want to know

So, we have to look globally for the most likely explanation of what went on last night… and it all started with the European Central Bank.

The dollar has strengthened recently. But don’t expect it to keep going. Investors can see there are not many interest rate cuts left in the Fed’s armoury, and the US economy has performed better than the doomsayers expected.

However, a statement from European Central Bank President Jean-Claude Trichet shows a shift in thinking on this side of the Atlantic - and investors had to digest its implications.

Trichet indicated that the bank was shifting its attention from protecting economic growth to fighting inflation. He implied the bank may now hike interest rates as soon as next month.

This reversed the outlook for the dollar’s fortune.

US oil investors shrugged off this news - but people in Asia smelled an opportunity.

All of the action took place in the final hour of US trade, which coincides with the time early-bird Asian traders started mulling over the previous day’s trade in Europe and the US.

It looks like US oil traders missed a trick yesterday - and the wealth went to Asia instead.

Still, that’s all part of the global trend in money these days: the Americans lose it and the Asians gain. We shouldn’t be that surprised.

Whatever the reason, this is all grist to the mill for our Smart Commodities UK oil stocks. Especially now, they are both immediate buys.

If you’d like details of these shares, I’d welcome you to find out more about my service here.

Regards

Garry White
Editor
Smart Commodities UK

Source: Biggest One Day Oil Price Jump Makes These 2 Shares an Immediate ‘Buy’!