The Energy Report for Friday, September 11, 2009
Come on everybody, let's gets happy! The economy is better and oil demand is rising. And you know that 787 billion dollar stimulus package we passed, according to the White House Council of Economic Advisors, probably created or saved 1 million jobs! That's only about $787,000 per job! And they probably pay $8 or 10 bucks an hour! See life is good especially if you are an oil bull.
It is time to get really happy! Just buy and close your eyes because if you decide to open them, you might not feel as happy or as bullish as you thought. The oil market moved on bullish momentum in part inspired by a strong stock market and the International Energy Agency's upbeat outlook for global oil demand. For the second month in a row the International Energy Agency raised its global oil demand projection predicting an average global daily consumption of 85.7 million barrels of oil. That is an increase of 450,000 barrels a day more than their last report. The IEA cited better demand in the US but also better than expected demand in China.
Yet it is in the China numbers that the problems may lie. Oil failed to get too excited about China's industrial production number that increased 12.3% over one year ago levels and beat expectations. Despite those strong numbers there are concerns that China, which has been buying a lot of oil, is storing more and more of it. Myra Saefong of MarketWatch points out the, bullish moves for crude and energy shares seemed to ignore the IEA's caveat that the underlying strength of [emerging market] demand has been obscured by massive stock building in China. Some analysts, according to Saefong, said investors would be wise to pay attention to this concern over the difficulty in distinguishing between China's stockpiling of oil, which will eventually end, and its actual demand growth. Saefong says that, The IEA itself admitted that the strength of Chinese oil demand remained elusive and oil-product stockpiling distorted China's demand picture. But despite this, the IEA chose to boost its demand forecasts for China, saying its outlook faces upside risks, but adding that without more detailed data, and in the face of likely continuing oil price volatility, demand projections will remain prone to substantial revisions.
Of course there is no doubt that China has been importing a lot of oil but not as much as last month. According to the Chinese government, China imported 18.47 million metric tons of crude oil in August which according to Dow Jones is the equivalent to 4.37 million barrels a day. As impressive as that was it was still down 5.8% from July's record high number. Dow Jones says the August figure brings China's crude oil imports for the first eight months to 128.9 million tons or around 130 million tons as an earlier 7.4% on year.
We are also seeing the contango in crude coming in. If the contango continues to come in, oil in floating storage may find its way back on the market.
The bulls got a boost from EIA data that showed a big draw in crude supply that showed that crude supplies fell by 5.9 million barrels from last week. That came with a jump in refinery runs that led to 2.1 million barrel build in gasoline supplies and a big build in distillates. Yet before the bulls get too excited about the crude build, supply is still well above average for this time of year.
What that means for price is a different matter. Take natural gas for example that surged wildly as traders now believe we may have hit a seasonal bottom. Despite the fact that storage is at a record high, the market feels we are cheap going into winter. Natural gas has been fighting a strong seasonal tendency to rally in September. According to Moore Research, January Natural Gas has rallied 12 out of the last 15 years. It is hard to fight that momentum forever. The EIA said gas supplies rose 69 billion cubic feet to 3.392 trillion cubic feet a bit less than expected.
It was 8 years ago that our lives changed forever. Say a prayer today for our country people and heroes that fell that day when on our ideals and way of life were attacked. The war on terror continues no matter what they decide to call it. The reason we can feel safe and secure is that our soldiers and friends in the intelligence community are risking their lives on a daily basis do everything they can to keep us all that way. Because of their supreme sacrifice we can go about our daily lives and enjoy the blessings of freedom and liberty and the ideals our enemies want to kill. Don't take our security for granted. Remember the lessons of September 11, 2001.
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Sell October crude at 7352 - stop 7550.
Sell October heating oil at 18400 - stop 18600.
We're short October RBOB from apprx 18510 - lower stop to 18490!
We're short October natural gas from apprx 270 - stopped at apprx 310. Buy October Natural gas at 270 stop 230.