The Energy Report for Friday, February, 6 2009
While the bulls and bears in oil beat themselves bloody in a choppy trading range there is one factor that will for the foreseeable future keep the market somewhat grounded and that my friend is capacity. Or better yet over capacity.
In fact we have so much spare capacity and oil floating around that the market is drunk with oil and over imbibed on capacity. So drunk with oil that we could say the bulls are positively incapacitated! And remember never trade and drive, and if you do, give your friend the keys. The dramatic slowdown in US and global economic growth has lead to the world going away from worrying about peak oil to the more imminent and perhaps more painful reality of peak demand. The signs that demand has peaked are everywhere and are especially clear when we see all of unused capacity around the global market place.
We can start with the OPEC cartel that just last July was pumping oil at a near record pace of close to 33 million barrels a day and is now targeting 29 million barrels and perhaps soon 28. You can look at US refining capacity where just a few months ago people were screaming that we needed more refining capacity are now only using rough 83 percent of our capacity which is near a record low for this time of year. We have factories closing all over. Gas rig counts are plummeting. Car sales are plunging. Manufacturing struggles. All things that signal weak demand. Demand growth from China is failing to live up to expectations.
Do you remember the ethanol boom? There was a concern that we would not have the ability to produce enough corn to meet the growth of demand for this renewable fuel. Yet now we have more than we need and more capacity besides. Earlier this week it was reported by ADM - Archer Daniels Midland - that 21% of all US ethanol production is shut down with a current capacity of 10.2 billion gallons. Last year we produced 12.9 billion gallons.
The world has changed in such a dizzying short time. We have gone from a frenzied fear that the world would run out of oil to a time where world oil consumption will probably fall two years in a row for the first time in 25 years. We have stared into the abyss of peak oil only to find it was peak demand that we were starting to see. And do not believe that because we have gone from one extreme to the other in such a short period of time that we will return to the days of oil excess where oil was driven by easy credit and paper mortgages. Then the energy markets were built on false assumptions about the health of the global economy and the belief that the world's economies could be shielded from the US financial woes.
Now I am not so naïve to believe that energy can never rebound but before we start talking about a massive rebound we have to remember that at our peak the world proved that it could produce substantially more energy than it is today. That means that before we can talk about the prices we saw before, we have to create the conditions that existed before to power that kind of demand. That overhang of spare capacity and the belief that much of that can be ramped up relatively quickly will help pressure the market. What I am trying to say is that the market can get all excited about a potential stimulus plan and all the money that is printed in Washington and around the globe, yet it will take time to work off a lot of this over capacity.
Yes, I know that the great bull markets of all time are nurtured in times like these but it will take some time to burgeon. Yes, the International Energy Agency is talking about rapidly declining fields and there are some signs that demand in some parts of the world will not be too bad.
Reuter's News for example is saying the IEA reported that oil demand growth in the Middle East will slow but stay robust in 2009 as governments in the world's top exporting region boost spending to cushion the impact of the global economic slowdown. The IEA says Middle East oil demand will be around 7.2 million bpd in 2009, up from 7.0 million bpd in 2008. In fact Middle East demand growth was likely to outstrip that of China, a much larger population and the main driver behind global demand growth and the rally on oil prices from around $20 a barrel in 2002 to the July 2008 peak above $147. Chinese demand was expected to rise by 90,000 bpd in 2009.
OPEC has been doing a great job on productions cuts but the more they cut the more capacity they have. On energies and oil, it is still a capacity issue and let's face it right now we are over capacitated.
This weekend don't you get over capacitated! Stay on the straight and narrow by watching the Fox Business Network where you can see me every day! Also make sure you sign up for the Phil Flynn energy blast and to get your password to the magical world of Alaronenergies! Such excitement! Just call me at 800-935-6487 or email me at email@example.com to open your account!
We are still short oil and riding down the biggest break in oil history!!! We're short March crude from apprx 4354 on what is a quadruple rollover! Lower stop to 5070.
Sell March heating oil at 14700 - stop 15600.
Sell March RBOB at 13300 - stop 13900.
Sell March natural gas at 500 - stop 540
The Dan Flynn Corm & Ethanol Report
Will our politicians pass a responsible stimulus package.
Hmmmmm. Politicians and responsibility spoken in the same sentence. The March Corn settled at 375 1/2 up 4 1/4 cents continuing a dead cat bounce. The range was 377 to 369 3/4. I still remain long term bullish on this market. Energies continue to fall in our current economic crisis. Have a great trading day ! Let's worry about global warming ! Chicago will reach a high of 50 degrees Farenheight Saturday. Oh the humanity !
Let's get the pork off the stimulis package and get back to work !