Alright, maybe the API wasn't so crazy after all. Maybe it's me that's crazy. The Department of Energy report rocked the market with a wacky build. A huge 6.2 million barrel build but basically that just caught up to where the American Petroleum Institute was all along. In fact it looks like the DOE was off and the API was right on. Perhaps the reaction to the huge build in crude supply was muted because the market saw the API numbers the day before.
Over the years the API has gotten a bad rap by traders, myself included. It focused on the week to week changes as opposed to the big picture. Yet if you focus on the comparisons, maybe I have been too critical of the API. Let's take a look at the two reports.
As you can see the crude total numbers are almost identical and the other differences negligible. And somehow over the years, the API report, which is really the granddaddy of all energy supply reports (they taught the Department of Energy everything they know), seemed to lose favor with the market place because somehow the market thought that the DOE numbers were more accurate. This perception began because the government had the authority to mandate that companies report storage while the API was always voluntary. Yet is that perception fair. Should the market really be focusing on the API more and should traders be happy that they will get a chance to react to both numbers. Maybe to find out traders have to cut through the inventory myths and legends and really focus on the facts.
Despite the belief that the API and the DOE are in different universes, the fact is the API and EIA monthly estimates (weekly estimates totaled for the month) are within 1% of one another 50 to 70% of the time for crude, gasoline, and distillate stocks over the past 5 years. Whatever universe you chose, the API and EIA are on the same one. Of course when you focus on the weekly data and changes, it seems that they are out of sink.
Another reason that traders focus on the Department of Energy report is the DOE is mandatory reporting. Yet according to the API they still receive data for stocks from about 85% of the industry. The Energy Information Agency is on record saying they receive about a 90% response rate. Data received by API is an exact duplicate copy of what EIA receives. So over the long run the difference in the estimates - usually negligible - is because of different methodologies and statistical techniques. So I admit that I was probably too hard on the API and playing into a false trader stereotype. Let's look at the positive and that is we will have two chances to be right or wrong the numbers and perhaps play the spread on the two reports! Now if we can get the options market to stay open a little longer! Maybe they should release the report midday! That would be fun.
President Ronald Reagan was the great communicator and Obama wants to be the great stimulator and debt builder. The House passed the stimulus without a single republican vote and is now on its way to the Senate. The Fed disappointed the bond traders by not being more aggressive with a plan to buy treasuries. The yields are rising and may force the Feds hand. Still at the end of the day oil is under pressure and in a range. If oil takes out $40 look for a major washout. The stimulus cannot come fast enough.
Stocks treating you bad?! Maybe it is time you look at the commodities markets! If you can't get a break in this market make sure you call me at 800-935-6487 or email me at firstname.lastname@example.org to open your account. Also check out the Fox Business Network where we will be breaking the latest market moving news and where you can see me every day!
We're short March crude from apprx 4354 on what is now a quadruple rollover! Stop 5350.
Sell March heating oil at 15100 - stop 15600.
Sell March RBOB at 12450 - stop 12900.
Sell March natural gas at 500 - stop 520.
The Dan Flynn Corn & Ethanol Report
Thursday January 29th 2009
Good Morning !
President Obama is extending his hand to Iran to usher in new relations to the evil Ahmadinejad. Meanwhile Premiers Wen of China and Putin of Russia blame the Global Economic Crisis on Capitalism. Go Figure.
I blame Dictatorships and Totalititarian and Barney Frank. Putin open the gas pipeline to Europe you terrorist ! In the overnight the March Corn settled 378 1/4 down 8 3/4 cents.
The range was 384 1/4 to 378. The market continues to follow weather updates in Argentina and Brazil as well the U.S. Dollar On the Energy Front I remain bearish for the several fundamental reasons I spoke of in past reports.
Have a Great Trading Day !