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For those of your with cast-iron stomachs, this may be the best week in a year to sell crude oil call options on the NYMEX. The Paris-based International Energy Agency (IEA) again made a splash recently with its annual medium-term forecast, which projected tight oil markets through 2012. Traders and hedge funds were delirious at the news, and oil surged past $72 a barrel on the NYMEX. Though down from $78 last summer, it is a solid rally from lows in the $50s earlier this year. What the media overlooked when repeating the IEA incantations is that the Parisian body represents the developed and oil-importing countries of the world, and has a professional role to play: To goad OPEC to produce more oil. Thus, the report is uniformly bullish when projecting crude oil demand, and steadfastly bearish when projecting supply, including supply from the world’s burgeoning biofuels sector. But, evidently, no one in the media bothered to read the report – after all, it was 80 pages long, and deadlines are measured in hours if not minutes. But comparisons are in order. Only last June, the United States Energy Information Administration also released a forecast, in which it made projections, some based on the assumption that oil would trade at nearly $70 a barrel. The EIA projected that with such “high” prices, oil demand would grow worldwide at 1.4 percent a year, even though demand would fall in developed nations. In fact, world crude oil demand grew by 3.1 percent in 2004, then 1.4 percent in 2005, then 0.7 percent last year, according to British Petroleum’s “World Statistical Review-2007”, one of the industry Bibles. One could make a case – and I do – that we are setting up a Peak Demand scenario, not a Peak Oil picture. Now, the difference between the EIA forecast of 1.4 percent vs. the 2.2 percent IEA forecast may not seem like much. But toss in annual compounding, and you start to see some air. Using the EIA projections, world demand will reach 92.3 million barrels a day (mbd) in 2012, but the Parisian IEA is forecasting 95.8 mbd. If the EIA is right, you have 3.5 mbd extra sloshing around in 2012, enough to send prices south. Remarkably, the IEA also forecast that supplies from biofuel producers would start flagging in 2009. This strikes many in the biofuel sector as near lunacy. With crude oil at $70 a barrel, why would not biofuels boom, as they have been for the last several years? Indeed, in the United States, ethanol production has doubled in the last three years, and will likely double again in the next tree years, according to the U.S.-based Renewable Fuels Association. Look for 6 percent of U.S. motor “gasoline” to be ethanol by 2010. The IEA takes a very grim view, and that is that rising crop prices will cut into biofuel profits. Thus less biofuel crops. But US corn farmers are actually now concerned about a glut, not higher prices (by the way, per bushel, corn prices are now where they were in 1980, even before adjusting for inflation). Moreover, many other types if biofuels are coming closer to market, such as cellulosic ethanol, or diesel from jatropha (an oil-bearing tree) plantations, now being widely cultivated in Indonesia, India and China. But back to making money for you, the reader. All in all, we may be seeing a “perfect storm” for crude oil prices right now. The IEA report followed on the heels of several scares, such as rebels in Nigeria, and continuing anarchy in Iraq (none of which validates Peak Oil theories, but which attest deeply to human folly). Sell December call options at $95 on the NYMEX. Be prepared to lose it all, but more likely it will be easy money. Crude is near record highs, and is likely headed down after summer.

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