I can't help feeling that when the market is this long, there could well be a lot of disappointed people out there.

I noticed on Friday that the 95 puts (expire thursday) are very well bid in the 20-30's with a lot of two way business going on. A lot of liquidity for something that requires a 600+ point downswing to make them worth anything at all by thursday!

I believe the arguments for the upside are possible endangerment of supply in the middle east, primarily Libya and Saudi Arabia. A "protestors shot" newspoke caused a 3 dollar rally intra day during the week, which then came straight back down once common sense took hold.

The daft thing is if Gadaffi actually WINS against the rebels, then that would be bearish for oil rather than bullish as the whole "scare" business implies. Last I heard he had re-taken the oil port of Ras Lanuf.

Dangers to disruption? Embargos? - Are the west really going to stop buying the oil, merely cutting off noses to spite their own faces? - I don't believe so.
The saudis have been stepping up output throughout the last week which has been no secret.

Now look at the opposite side of the coin with regards to the Japanese earthquake:-

Friday's market action saw a massive repatriation move, contrary to market expectations for a sliding yen. The dollar got hammered, The yen rallied. Oil fell, but not that much considering the implied volatility of options.

Japan's economy will take a long while to put right. Factory output isn't going to be stepped up, unlike refinery output in the middle east - either because the factories have been damaged/destroyed, or worse because the entire workforce has perished, and have yet to be found. I hear two entire bullet trains are MISSING which makes one wonder if they drove headlong down a big hole in the ground killing upwards of 4 figures of the productive commuting public in the process.

Demand is high now for medics, ground penetrating radar, sniffer dogs, water, food, medical, and living supplies, and is most definately NOT for fast cars, gambling, factory production, raw material consumption, and of course all the other things that make up the normal day-to-day of the japanese lifestyle.

I don't think it has really sank in yet just how bad this most serious of earthquakes has been, and the effect that in due course it will have on the world's markets as a direct consequence of the high level of death and destruction meted out on the most productive of populations.

In conclusion, I am thinking that Oil Longs are in the same boat that Nick Leeson was when he heavily bought nikkei futures on top of his already large position on the days after the Kobi earthquake. The market initially rallied, since he was doing massive buying. Once his bid disappeared, the market tanked, bringing down Barings Bank - funder of the Panama Canal - in the process.

There's a lot of longs to get out of this market, no disruption to oil supplies, a glut of oil at delivery terminals already, and a slowing down of the western public to keep on buying sky-high fuel.

I believe that Options have priced in a coming week move back to last month's range of $85-$91. There are plenty out there talking it down to the $67-$74 range, but I won't be crossing that bridge just yet.

Check out for yourselves the prices of OTM options the same distance strikes in both directions - Puts and Calls in this instance are NOT created equal!

...And this is all before one considers any JAPANESE longs that are in dire need of being converted into repatriated cash right now, that are having some difficulty moving their positions thus far, perhaps because the Broker's office has gone, communications are down, or there is no staff to process their orders.