If the fundamentals on oil are so bearish then why did oil close at a new high for the year? Oil bears be on guard as the fundamentals in the oil market are transcending traditional measures of supply and demand.
Oil is making a statement and that statement could be punctuated with a new worry on the geo-political front. Reports of a military coup in Georgia could pop the top on this simmering caldron. If we take out the highs for the year, stops could be hit sending oil in a higher trading range and possibly signaling a move towards $70 a barrel. Oil prices tried to retreat from the highs yet seem to be moving back up on renewed worries about the Georgia Republic. Reuter's news is reporting that the Georgian government was saying that a military coup, was underway. The Interior Ministry of Georgia said that a plot to overthrow the Georgian government had been uncovered, and said people involved had received money from Russia. Now the Georgian government says that things are under control yet we will continue to watch the situation as it develops.
Yet even without the geo-political news, the action in the oil market has been impressive. Yesterday oil prices surged on a triple dose of better than expected economic news. Oil climbed despite of the expectation for more increases in supplies. Oil bears are stunned and believe that the market is defying rational explanation. Still oil failed to break-out over the high and this gives the bears hope that their long nightmare is over.
There is a rational explanation for the move, yet the bears continue to ignore it. Maybe it as simple as the fact that oil has more dollar value in a world where the US government is running up a debt of historic proportions. The dollar is under pressure and at the same time the Fed has instituted a policy of quantitative easing that has kept a floor under crude since they made that fateful decision last March. Plus we see signs that China's manufacturing sector is once again expanding for the first time in eight months.
China, the main drive of commodity demand, is showing sign that demand will grow. And it is not just oil that is betting on a China rebound. We have seen some major moves in the soft commodities. Cotton is one market that has put in an impressive rebound mainly on expectations of a rebound in the Chinese economy. The International Cotton Advisory Committee said that world cotton trade is forecast to recover in 2009-10, led by China and India, though production is expected to exceed mill use and raise ending stocks. The CAC said an expected increase in China's imports to 1.7 million tons could significantly contribute to the rebound. India is expected to account for most of the projected export rise with shipments forecast to more than double to 1.2 million tons, ICAC said in the release.
In the backdrop I am still hearing new rumors daily about Israel planning an attack on Iran's nuclear facilities. There may be nothing to it but a day does not go by when I don't hear of some speculation in that direction. The question is whether or not the market is buying into it.
On the supply side all we here is that there is a glut of oil. Last week Bloomberg news reported that in Rotterdam, Europe's largest port, said they may be running out of space to store crude. This week the market expects another increase in US supply already at an 18 and a half year high. Still oil is focused on other things for the moment.
Buy June crude oil at 4880 - stop 4730.
Buy June heating oil at 14000 - stop 13700.
Buy June RBOB at 15200 - stop 14700.
Stopped on short June natural gas from apprx 390 at apprx 360! Buy June natural gas at 320 - stop 290.
The Dan Flynn Corn & Ethanol Report
The July Corn settled at 407 up 1 1/2 cents.
The range was 409 3/4 to 405 1/2.
In the early going the Stock Market is softening off yesterdays gains.
Diddo for the U.S. Dollar.
However, Gold continues to trade higher.
Energies are trading mostly lower after challenging 2009 highs in yesterdays session.
Look for continued market volitility and keep your ears on the news.