So far over the past several columns, I have written to you about cars and tires. So today, let’s talk about something completely different. How about oil?

Damn it!

Okay fine: it’s the American obsession, and last I checked, my passport said I am an American too, so why should I be any different? Besides, there’s some interesting stuff happening with oil futures and energy stocks.

Crossing the Line

Let’s start with crude oil setting its 2009 high at $54.83 in New York intraday trading. For most of this year, $50/barrel has been one of those psychological “lines in the sand,” much like Dow 8,000 for a while there.

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Now that traders have firmly stepped across both lines, interest is perking up from all quarters, both in stocks and in oil. One really must follow the other for two reasons.

The Cost of Doing Business

First of all, there is the obvious: if the global economy recovers even in the slightest, the ensuing increases in manufacturing, shipping and travel will require energy, and despite the best of green intentions, for now energy still means oil.

Second, despite all the rumblings about finding a new world currency, oil is still priced globally in dollars. And while it may be taking Washington an agonizingly long time to actually disburse all the dollars it has promised, it is finally getting around to it.

Eventually, an increase in GDP might soak up enough of those dollars to make a difference. Just as eventually my wife’s dog will grow thumbs and learn to open his own food. Could happen: he’s a pretty smart little guy and all. Still, I am not holding my breath – on either front.

It’s Baaaack (cue the creepy music)

Yeah, yeah, I know: the Fed claims that inflation is actually “below rates that best foster economic growth and price stability in the longer term,” and plans to keep rates at or below zed for the foreseeable future. That’s their story and they are sticking to it.

Traders, on the other hand, are already starting to act on the idea that inflation IS creeping back into the picture. Taken a gander at 30-year T-Bonds lately? Last December, futures were hovering around 142 and change with yields under 2%. Now we were looking 122, a drop of some 14%, forcing yields to just about double.

Best part is, you really don’t have to say which argument is your favorite, as they are not mutually exclusive. Beyond that, they are value arguments: we could tussle over which one is driving oil futures up till the cows come home.

The Heart of the Matter

What truly matters is that oil futures are up, and are likely to keep moving up. While many analysts are having a blast tussling over the penny changes caused by weekly rises and falls in stored reserves, most all concede that crude will be in the vicinity of $65-$70 by year’s end.

With oil’s downside risk clearly defined by a rounding bottom, and a strong upside story playing out both in the news and charts, interest is also returning to oil and energy stocks.

Looking to the Energy Select Sector SPDR (XLE:NYSE) – which still contains the world’s most profitable companies – we see that investors have crossed that same line in the sand. The recent price recovery has put the XLE up over the resistance node at $46.65 and firmly on the path through $55.25 and $63.74 as it moves towards the attractive node at $74.32.

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Simply buying shares of XLE could net you a reasonably satisfying gain just shy of 50%. But if we are seeing the return of inflation and the demise of the dollar (and we really, truly are), then you might want to make your very own dollars multiply a tad faster than that.

If so, then you could consider speculating on the XLE January 2010 50 Calls (WHA AX). That same move would allow these calls to rise from $621/contract to as much as $2,091 for a gain of some 237%.

Source: What Bond and Oil Traders Know About Inflation – and How You Can Make 237% Off It

Crude’s advance on Tuesday stemmed from Wall Street gains sparked by reassuring comments from Fed Chief Ben Bernanke, while President Barack Obama said the United States would emerge stronger from the economic slump.

“The equities rally is supporting the market,” said Tony Machacek, a broker at Bache Commodities Ltd.

U.S. crude was up 20 cents to $40.16 by 0948 GMT. Brent , trading at an atypical premium to U.S. crude because high U.S. inventories are weighing on the U.S. benchmark, was up 1 cent to $42.51.

Oil has fallen from a record high near $150 reached last summer, battered by the recession and weakening global fuel demand which forecasters such as the International Energy Agency predict will contract in 2009.

The price of oil has become closely intertwined with equities, a barometer of economic sentiment, in recent months. European stocks were up more than 1 percent on Wednesday, following gains in Asia.

Bernanke signaled on Tuesday that U.S. banks should be able to weather the downturn without being nationalized. But Obama tempered his message of hope with a warning that America faces a “day of reckoning” for its past excesses.

Attention will focus later in the session on the latest snapshot of oil supplies in the United States.

The U.S. Energy Information Administration releases its weekly inventory report at 1530 GMT, which is expected to show that crude stocks probably rose 1.4 million barrels last week.

American Petroleum Institute data on Tuesday showed crude stocks rose 341,000 barrels last week. Oil traders consider the EIA data gives a fuller picture because energy firms are required to respond to its weekly survey.

Also supporting oil were figures earlier this week showing higher-than-expected compliance by the Organization of the Petroleum Exporting Countries to agreed production cuts.

OPEC oil ministers meet to set policy on March 15, and the group is expected to consider deepening its output cuts.

LONDON, Feb 25 (Reuters)

Traders were wary as they watched Arthur, the first Atlantic storm of the season, churn across the Gulf of Mexico without reaching hurricane status or impacting oil installations.

Charles Perry, president of Perry Management, said there is some “conservatism” in the market right now as crude has been unable to bounce back to the $130 level, with the feeling that we have “not seen all the drop yet” in the oil price.

But it’s possible that “this week will be quite volatile,” Perry said. “All traders are looking for signs to indicate which way the price is going.”

Perry said there was a “giant profit taking last week,” as trading volume shot up, accelerating to about 45 million contracts on Friday. “So today, the traders are establishing a new position at a lower price.”

Source: Crude Inches Higher – Traders look for New Floor after Major Profit Taking

Royal Dutch Shell Plc said a militant attack on a pipeline has cut as much as 169,000 barrels a day of Nigeria’s Bonny Light crude production as rebels claimed responsibility for two more strikes today.

Crude futures contracts in New York have hit fresh highs of $117+ a barrel on the news of the attacks. Crude oil prices climbed to a new record after Shell said exports would be cut — the highest since futures started in 1983.

“The people of the Delta have a point,” says commodities expert Garry White. “It appears that they are not benefiting at all from Nigeria’s oil wealth (although bombs are not the way to reverse that situation in my mind).

“However, it is not my job to moralize on this situation; I’m here to look at facts.

“With global supply so tight, any supply disruptions will send oil traders into a tizzy … This is yet another bullish factor for the oil price.”