A huge debate is raging at the moment about the outlook for crude oil, influencing the formulation of investment strategy in a significant way. Discussions range from excessive speculation to geopolitical factors to increased demand meeting inelastic supply.

A report from Rob Fraim (Mid-Atlantic Securities, Inc) has just arrived in my inbox and is worth perusing for two reasons: (1) Rob’s good track record in this sphere, and (2) his common-sense approach and findings with which I mostly concur. The paragraphs below are extracts from his excellent report.

I have for quite a lengthy period of time – going back several years – been bullish on energy markets and energy-related stocks.

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On June 10th, the Commodity Futures Trading Commission (CFTC) called a public meeting of its Energy Markets Advisory Committee to address continually exponentiating oil prices.

Representatives from major investment banks such as Goldman Sachs, JPMorgan, and Morgan Stanley fielded questions regarding their banks’ roles in the oil futures market for the first time under the public eye. Many groups have raised suspicion as to whether the banks are using investors’ funds to bid up oil prices, while at the same time issuing predictions that prices will rise.

Donald Casturo, managing director of Goldman Sachs, stated: “There is a clear separation between our research and trading departments…The firm is acting within the terms of the law.”

Still, organizations like Industrial Energy Consumers of America remain skeptical of the truth in this statement. The CFTC announced the launch of an investigation to be conducted by a special panel consisting of Federal Reserve, SEC,

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Normally, I don't care for predictions but considering this was the fellow who in 2005 said their could be a "super spike" in crude, let's see what he has to say (I am on record as saying a "World of Shortages" theme combined with Western governments flooding the world with fiat paper can only combine to ultimately create higher prices). These are the first people (along with Cramer - have to give him kudos) who finally are realizing that the world does not revolve around the United States of Subprime; a position I've been advocating for a long while. The quicker we move away from our country-centric views, the better. U.S. gasoline is no longer the leading fundamental driving oil markets, according to a report penned by Arjun Murti of Goldman Sachs Tuesday. Murti who famously predicted the dawn of the “super spike” back in March 2005, says ...

Short term movements in energy markets are very much tied to supply and demand. Seasonal variations in the dynamics for crude oil and natural gas can allow for some very successful trading in these areas. With crude oil prices sitting around record highs of $79 per barrel, and the summer driving season winding down, it might be prudent to take some chips off the table if you purchased shares of the United States Oil Fund (USO) as I suggested back in January when the crude oil ETF was down 40% from its high.

Since then shares of USO have risen more than 35% to $59.43. This is not to say that I would get off of the energy train for good. But if you have an elevated exposure to crude oil specifically, maybe take some profits.