Jim Cramer says this might also be a "absolutely fabulous buying opportunity" for oil. File Image / Pixabay
As the full extent of Hurricane Harvey's devastation became clearer on Wednesday due to the flood waters beginning to recede, West Texas Intermediate fell 48 cents to settle at $45.96 per barrel, while Brent dropped $1.14 to $50.86.
This was despite Energy Information Administration data released Wednesday showing that domestic crude supplies dropped by 5.4 million barrels for the week ended August 25, versus analysts earlier conceding that the drop would be on the order of 1.5 million barrels.
The analytical community had also predicted a 900,000 barrel drop for gasoline, but instead it increased by 35,000 barrels.
Matt Smith, director of commodity research at ClipperData, told MarketWatch that it's "the calm before the storm - literally," and that the EIA data has "done little to distract the market from current events, with the data superseded by widespread refinery outages; refinery runs ahead of the storm were exceedingly strong, showing a counter-seasonal increase, and a solid one at that."
He added, "Combine this with higher refining activity and lower imports—as they tailed off at the end of last week due to Hurricane Harvey—and a chunky draw to crude stocks has been seen."
Matt Smith, head of commodities research, ClipperData
It's the calm before the storm - literally
John Macaluso, an analyst at Tyche Capital Advisors, warned that "Next week's EIA data should see large draws in products due to refinery outages, prompting large builds in oil inventories"; about 1.4 million barrels of extra oil that "won't be refined to fuels will be sent to storage as long as refineries are shut-in."
As far as Jim Cramer, host of CNBC's Mad Money is concerned, oil prices are about to "fall off a cliff" - but he doesn't necessarily think this is a bad thing.
That was his contention on Wednesday as he noted that WTI prices have been sliding since January, making a series of lower highs that have caused short-sighted traders to become more bullish - a condition that has caused considerable frustration because crude is stuck in a trading range.
Because oil prices have been making lower lows in recent months, Cramer's colleague, Carley Garner, the co-founder of DeCarley Trading, is concerned that an overly dramatic dip in selling could send crude down as low as $35.50.
Cramer said, "We've made this point before, but ... it's worth stressing now, because we're currently approaching what's historically been a bearish time of year ... for the oil markets and [it wouldn't be surprising] if the bulls just get blown out here."
He added, "Here's the thing: if Garner's suspicions prove to be correct and oil does pull back down to the mid-$30s, she thinks then it would be an absolutely fabulous buying opportunity; if you want some oil exposure, maybe it's a good idea to take her advice and wait for a major decline before you pull the trigger."
The Cramer/Garner outlook falls in line with James Cordier, founder and president of Optionsellers.com, recently predicting that oil will drop to $32 per by by December; but it differs from the forecasts of experts such as Stephen Schork, president of The Schork Report, who earlier this week said prices will dip into the mid $40s but not below the $30s.