Well if you can't fix the economy you might as well fix the weather. Who said everybody complains about the weather but no one ever does anything about it. Obama is. The Times on Line reports that, President Obama and other leaders backed historic new targets for tackling global warming last night in an agreement designed to pave the way for a world deal in the autumn. (You know a deal that is not really a deal. One of the non-binding sort.) For the first time, America and the other seven richest economies agreed to the goal of keeping the world's average temperature from rising more than 2C (3.6F). (Next perhaps they should take on hurricanes.) They also agreed to cut greenhouse gas emissions by 80 percent by 2050 as they strove for a worldwide deal at Copenhagen in December. The moves the Times says were designed to put the squeeze on the world's developing nations, where most leaders will join the G8 for a debate chaired by Obama today.
Of Course not China where President Hu Jintao went home to quell violence in the western oil producing region. Violence between Uighur demonstrators and government security forces have caught the attention of the world and President Jintao thinks it is cheaper to deal with that than climate change. Or maybe he could be checking in on Rio Tinto employees four of which are being held due to alleged theft of Chinese state secrets. Long term any deal like trying to control the weather will ultimately be very bullish for energy assuming that the economy does not collapse while we try to heal Mother Nature.
When it comes to the economy and the outlook for it, guesses are all over the board. As Bloomberg News reported, The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates. The IMF said in a revised forecast that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth. A contraction this year will be 1.4 percent, worse than an April forecast for a 1.3 percent drop.
Bloomberg also reported that OPEC says the world will need less crude oil from the group in 2013 than it did last year as the lingering impact of recession crimps demand and rising biofuels supply makes up for shrinking production elsewhere. OPEC, whose members supply about 40 percent of the world's oil, slashed its forecast for global oil consumption in 2013 by 5.7 million barrels to 87.9 million barrels a day. OPEC will have to produce 31 million barrels of crude daily in 2013 to satisfy demand, compared with 31.2 million barrels last year OPEC says demand will rise slowly over the medium term, returning back to 2008 levels by around 2013.
This comes as OPEC Is reeling from sinking demand. Bloomberg news reports that Saudi Aramco, the world's largest state-owned oil company, deepened cuts in supplies of its Arab heavy and medium oil grades sold under term contracts to Asia in August, refinery officials said. The oil company will reduce overall supplies, which include the light and extra light grades, by as much as 20 percent from contractual volumes, according to a survey of officials at refineries in Japan, Singapore and South Korea Late news from OPEC Kuwait Petroleum Corp. reduced its August crude oil official selling price for the first time in three months because of a lower profit in producing fuel oil. This is a sign that demand in Asia may be softening a bit.
Add to that, The Energy Information Agency report adds to the bearish mood now the question is can the dollar and the report on natural gas slow the breakdown? The market went back into defensive mode as traders flocked to the ten year note in the best auction since 1995. After the close better than expected earnings from Alcoa is giving some hope that the green shoots can sprout again yet it is hard to get past yesterday's bearish data. The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.9 million barrels from the previous week. Now you think on the face of that it would be a bit negative yet while we saw a large drop over all we saw an increase in the key delivery point in Cushing Oklahoma. Over all supplies are at 347.3 million barrels and according to the EIA are above the upper boundary of the average range for this time of year.
Total motor gasoline inventories increased ahead of the Fourth of July holiday rising by 1.9 million barrels last week, and are in the upper half of the average range. And distillates continue to glut inventories increasing by 3.7 million barrels well above the average range for this time of year. Why are distillates so high? The economy and demand continues to be horrid. The EIA says that distillate fuel demand is down 12.3 percent from the same period last year. Jet fuel demand is 13.2 percent lower over the last four weeks compared to the same four-week period last year.
Today natural gas hopefully will garner some attention as the EIA releases the weekly storage report. Reuter's news says that we should expect an injection in the area of 83 bcf. The larger question is whether or not natural gas will get back in line with crude. The EIA did a great job explaining this question I get very often. The EIA says that starting in 2006 the relationship between oil and natural gas prices began to change. At that time, the price for crude oil began to increase, pushing residual fuel oil prices higher, but the price of U.S. natural gas didn't rise with it. If end users had the capability to switch from residual fuel oil to natural gas, they did it then. For example, switching was documented in electric generation in the Northeast and in Florida. But instead of prices moving back into alignment as natural gas consumption expanded, with the exception of a brief period in late-2006, the spread persisted. As natural gas supply increased from 2006 through the first half of 2009, lower natural gas prices meant that oil-to-gas fuel-switching opportunities were fully utilized. With natural gas supply continuing to grow, the crude oil to natural gas price ratio jumped to an average of nearly 11:1. In June 2009, the ratio was a whopping 18:1, the highest it has been since October 1990. Indeed, with natural gas prices currently in the $3 to $4 per million metric Btu range, efficient natural gas generation can now compete effectively for economic dispatch against coal-fired generation in parts of the Southeast even though natural gas generally remains somewhat more expensive than coal on a Btu basis. The shift in focus from fuel-switching on the margin between natural gas and oil to fuel-switching on the margin between natural gas and coal illustrates a major market shift. It is increasingly apparent that the markets for crude oil and U.S. natural gas are now responding to different drivers. Whereas the market for crude oil is unquestionably global in nature, the natural gas market remains highly segmented. Asian demand and OPEC supply may be key factors influencing the current crude oil market, but they have little bearing on the natural gas market in the United States. Instead, in recent years, U.S. natural gas prices have been more responsive to conditions in North America: hurricane activity along the Gulf Coast, working inventory levels, development of natural gas shale, temperature swings that boost demand for space-heating in the winter and space-cooling in the summer and, during the present economic downturn, a sharp decline in industrial gas demand.
Sell August crude at 6600 - stop 6800.
Sell August heating oil at 16800 - stop 17300.
Stopped on long August RBOB from apprx 17800 at apprx 16900. Sell August RBOB at 17500 - stop 17750.
Buy August natural gas at 335 - stop 323.
The Dan Flynn Corn & Ethanol Report
Thursday July 9th 2009
Good Morning !
December Corn settled at 338 3/4 which was up 4 1/2 cents. The range was 340 3/4 to334 3/4. With Fridays numbers coming out (Crop Production, U.S. Trade Balance and U.S.D.A. Supply & Demand)
This could be our short covereing rally.
Where have the funds gone? Worried about speculation?
Or worried about continued government intervention in the private sector.
Free Markets for Free Men !
On the Energy Front August Crude tried to close below 6000 and failed to do so.
In the overnight we rallied up over 100 points.
I anticipate more choppy trade until we get a direct fundamental reason to trend.
Have a Great Trading Day !