To be bearish or not to be bullish! That is the question! Let’s face it, right now the fundamentals make it too bearish to be bullish but the market action, Fed policy and those pesky commodity buying Chinese makes it too bullish to be too bearish! You can be a bear or a bull in the oil market and it doesn’t seem to matter! You can be bullish and smile for awhile or bearish and do the same.

Oil continues to wallow in a tight trading range lacking any real conviction on whether to move higher or lower. This is even more incredible when you consider all the news and other energy issues we have learned about just this week! What am I talking about?! Well maybe the fact that US oil supply in this country is near a 20 year high. Or it could be that demand is near a ten year low. We saw a projection like the one from the US Energy Information Agency saying world oil consumption would drop by 1.35 million barrels per day oil in 2009 on top of the incredible drop that we have already seen this year. We saw the International Energy Agency lower its demand forecast by 1.0 million barrels a day and its expectation that the world will only use about 83.4 million barrels per day in 2009 or 2.4 million barrels a day which is about 2.8% less than last year. Talk so bearish that it makes you want to seek higher ground on fears that your house will soon be flooded with oil. Oh sure oil could have the biggest weekly decline since February yet the market keeps hanging in there. Because there are some bullish factors as to price such as Fed policy, OPEC cuts, and reduced global energy investment.

Fed policy has been a major factor in keeping a floor under oil. The historic move to quantitative easing has put a floor under oil. Not just because of its direct impact on the value of the dollar but the perception of the Untied States by our creditors. Oil this year has been used as an economic tool to find safe haven away from the dollar and the credit crisis in general. Now there is growing evidence that China will look to store oil and other commodities as opposed to US treasuries. Not only oil but it seems like copper as well. The London Telegraph reported that instead of putting surplus funds into US treasuries China State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons. The Telegraph quotes Nobu Su, head of Taiwan's TMT group, which ships commodities to China, as saying that Beijing is trying to extricate itself from dollar dependency as fast as it can. China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years. They quote Jim Lennon head of Commodities at Macquarie bank as saying while it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. They are definitely buying metals to diversify out of US Treasuries and dollar holdings. John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep.

The Telegraph said that Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modeled on the Bancor, floated by John Maynard Keynes at Bretton Woods in 1944... The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr. Zhou said such a currency would prevent the sort of credit-based excess that has brought the global finance to its knees. If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets.(it would also explain the strength in oil.

The Telegraph says that, “One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets, he said.

This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits. The telegraph says that the beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores.

And this comes as OPEC continues to cut production. We heard that a projection from the tanker tracker firm Oil Movements that OPEC will cut crude-oil shipments by 2.5 percent this month hitting about 80% of their compliance targets. Even though they are short of their targets this is still unprecedented compliance from this merry band of cheaters. The Organization of Petroleum Exporting Countries, producer of about 40 percent of the world’s oil, will load about 22.2 million barrels a day in the four weeks ending May 2, down from 22.8 million a day in the month ended April 4. The other bullish factor is the cut back in production from other producers and the decline in production investment. Take for example a story that Reuters reported just yesterday on the natural gas front, Chesapeake Energy Corp. is going to curtail about 400 million cubic feet of its gross natural gas production cited lower well head prices. The cutback represents about 13% of its current product gas the EIA reported that Natural gas supplies rose 1.3 percent, or 21 billion cubic feet, to 1.695 trillion in the week ended April 10. Still well above the five year average but a little less above the five year average than it has been. Earlier this week the Energy Information Agency projected that natural gas consumption would fall by nearly 2 percent in 2009,leading to lower natural gas prices. Industrial natural gas consumption is expected to decline by more than 7 percent which is huge considering that industrial consumption of natural gas is currently down about 4 bcf from this time a year ago.