Sixty is not so nifty today as slowing demand fears now posses the energy complex. With politicians already talking about a second stimulus, the oil market reflects the darkening outlook for economic growth. Anemic retail sales and reports of lessening Asian demand played into the sobering mood. Oh sure, we did not close lower yesterday but the half hearted rebound after such a dramatic drop gave no one the impression that the bloodletting will soon come to an end. The market view has changed. Instead of worrying about inflation, it is now deflation fears that again have taken hold. It is not about the barrel being half full, it is about the barrel being half empty. With the market action mirroring last year's top from all time highs, unless there is a major change in the economic outlook or some immediate stimulus, the bears will again rule.
That is not to say that oil won't rise again. But it will take something special to change the trend. If it plays out like last year we could trend down into the end of this year and then turn next year when demand is expected to rise. A demand rebound is exactly what the International Energy Agency is looking for. The International Energy Agency said that they expect that global oil demand to increase by 1.4 million barrels a day, or 1.7 percent, to 85.2 million barrels a day next year.
Yet at the same time the International Energy Agency is warning that additions to global refining capacity in the coming years are likely to create a substantial overhang and could prompt some refineries to close. Platts News quoted the head of the IEA markets division David Fyfe as saying that, In view of a weak oil demand, weaker utilization rates would cause a real squeeze on refineries in OECD countries. We seem to be heading back into boom and bust in the refining sector. That's right! Too many refineries! Instead of building more we may need less. We went from a world where spare global refining capacity was nil to a world where refineries could close due to a lack of business.
Of course we still have other concerns. The dollar was again blasted by the Chinese. The Financial Times reports that, China has launched its highest-profile criticism of the dominant role of the US dollar as a global reserve currency at the G-8. Dai Bingguo, Chinese state councilor, was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates among leading currencies.
Sell August crude at 6300 - stop 6540.
Sell August heating oil at 16800 - stop 17300.
Buy August natural gas at 330 - stop 320.
The Dan Flynn Corn & Ethanol Report
Report Card Day !
Crop Production,Dairy Products,U.S. Trade Balance and U.S.D.A. Supply and Demand looms over the Grain Complex. In last nights action the December Corn settled at 341 which was up 1 cent.The range was 345 to 340 1/2.
After today's news we'll look forward to Monday's Crop Progress number due out at 3 P.M. C.S.T. I anticipate choppy trade and a long lightening if not liquidating market.
On the Energy Front were trading below $60 on Crude Oil.
We can expect traders shooting for a new low.
If the market is successful in staying below $60 this will continue to hinder any rally in the Ethanol Market.
Have a Great Trading Day !