Pricing in Mediocrity

Global oil markets are finding it hard to get excited living in this new post Federal Reserve World. The passion left the market place and sunk in to a kind of what might be described as a stag deflation mode. All across the yield curve, from the short end to the long, yields are sinking to near record lows.

While cheap money is keeping our economy meandering along, it is not the type of drive that seems to be the type of growth that will translate into strong energy demand.  What's more, even stories that are normally bullish for oil and the products are not giving the market the support you would expect.

For example the Chinese allowed their currency, the yuan renimbi, to rise to what is called the highest level in the modern era. The Wall Street Journal reported that on the over-the-counter market, the dollar was at CNY6.7900 around 0930 GMT, down from Thursday's close of CNY6.7997. It traded between CNY6.7856 and NY6.7977. The low end of the range was below the previous modern-era intraday low of NY6.7958, set Monday. The yuan is up 0.53% this week.

Yet not even what many thought would be a bullish move for oil has given us much play. In fact oil lost ground on the announcement.Now some say that is because the move by the Chinese was only a symbolic move ahead of the G-20 and not a sign that the Chinese are moving to float their currency. Yet it goes deeper than that. The market realizes that the Chinese revaluation may not have the impact on commodity demand that everyone has automatically thought or more correctly has already priced in.

If you are looking for the G20 to get oil inspired, I doubt it really will. In fact listening to those leaders may put us back into a daze. Financial Reform is moving forward and the markets initial reaction is that they do not think it will be as bad as feared. Yet still not enough to get us going.What could knock this market out of this malaise sadly could be more misery for the people down in the Gulf of Mexico.

The National Hurricane Center is saying that a disturbance down in the Gulf of Mexico has now a 60% chance of becoming a hurricane.

The NHC says that a, BROAD AREA OF LOW PRESSURE IS CENTERED ABOUT 150 MILES EAST-NORTHEAST OF CABO GRACIAS A DIOS ON THE HONDURAS-NICARAGUA BORDER.  THIS SYSTEM HAS CHANGED LITTLE IN ORGANIZATION DURING THEPAST SEVERAL HOURS.  HOWEVER...UPPER-LEVEL WINDS ARE GRADUALLY  BECOMING MORE CONDUCIVE FOR DEVELOPMENT AS THE LOW DRIFTS SLOWLY NORTHWESTWARD...AND THE SYSTEM COULD BECOME A TROPICAL DEPRESSIONBEFORE IT REACHES THE YUCATAN PENINSULA IN A COUPLE OF DAYS.  THERE IS A HIGH CHANCE...60 PERCENT...OF THIS SYSTEM BECOMING A TROPICAL CYCLONE DURING THE NEXT 48 HOURS.

This of course could be a devastating development the people in the Gulf as desperation is sinking in as the quest to stop the BP spill could be set back.  A hurricane would cause more environmental damage. Production and oil recovery efforts would have to be shut down for safety reasons. While that happens it is possible that if there was damage to the recovery platforms id could allow oil to escape. In the meantime we would have a storm induced drilling moratorium that even a judge could not overturn, increasing the price of oil and products.

Of course before we go that far we are still not sure that this storm will be a hurricane at all. Going into the weekend traders will use extra caution because they will not want to play with this storm over the weekend. If it were not for this storm oil would have probably fallen further on the Feds weaker economic outlook. If you want the best outlook check out the Fox Business Network where you can see me every day! Also make sure you are on my daily email blast! Also get our trade recommendations while they are still free. Just call Phil Flynn at 800-935-6487 or email me at pflynn@pfgbest.com to open your account.   

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