Time to buy Crude Oil

Here at Black Gold we believe it is time to put our toe in the water and go long crude oil at current levels. We are initiating a SMALL long position and recommend buying tonight or at the open tomorrow if crude opens at current levels or lower. We recommend buying crude oil about 1 year out on the curve in order to avoid the large front month contango caused by the inventory situation at Cushing, OK where inventories are at multi-year highs.

We would recommend buying crude oil for delivery anytime from December of this year to December 2012. As this is just a starter position we recommend buying 1/4 of a full position tomorrow and keeping plenty of cash available to buy more if crude goes lower. We believe that crude can go lower but that downside is now limited by OPEC production cuts (which we expect to be imminent even if not announced) and structural increases in Chinese demand driven by the massive auto sales of the past two years. These two factors should rule out any significant downside below $60 per barrel. While we think that oil could fall a few more dollars we don't want to be too greedy and will start our buy tomorrow with the intention of buying more if get into the mid 60's.