Closing my Oil short position, for now

In my rush to judgement, I shorted some oil, via DUG. I am now closing my position. My reasons for shoting oil were straightforward and still stand: 1) hedging my long UNG position 2) staying with a long US dollar trend which is pputting pressure on all dollar-denominated commodities, 3) USO chart, a proxy for OIL looks overbought and vulnerable to pullback, and 4) recently widening contanga ha been putting some pressure on the spot oil prices.

The main reason I decided to go to the sidelines here and clsoe my short is the unstability in Nigeria, one of the main oil producing countries. Unrest in the Niger Delta has reduced the country's daily oil output to 1.76 million barrels compared with 2.6 million barrels in January 2006. Nigeria's main armed group on Sunday intensified its threat to attack the oil industry in the coming days, warning that it will stand firm on a 72-hour ultimatum issued earlier. "The ultimatum (to local and foreign oil workers) expires about midnight (Monday).

Although, there should be no problems increasing supply from other places, given the luckluster demand, I still don't want to be exposed to the headline risk over the next few days. Stay tuned.