Strange Bed Fellows.
What does OPEC and the International Energy Agency have in common? Well usually not too much but there are exceptions.
OPEC represents the interests of oil producers whose club pumps about 40 percent of the of the global oil supply and the International Energy Agency (IEA) which acts as energy policy advisor to 28 oil consuming nations rarely see eye to eye to eye on many of the big energy issues of the day. Yet it seems in this era of economic stress even this odd couple may share some of the same ideas on energy without driving the other one crazy.
Well for one thing they both generally believe that the demand for oil is getting better. The IEA was the latest agency to upwardly revise its forecast for global oil demand predicting a consumption average rate of 86.2 million barrels a day up 140,000 barrels from their October report. That was the day after OPEC predicted a demand increase to 85.07 million barrels a day 50,000 barrels a day higher than their last report. Usually the IEA likes to estimate demand on the high side and OPEC on the low side yet a demand increase. Yet it is not just increasing demand that they agree on. They agree that the increasing price of crude may be a threat to the economic recovery.
Yesterday OPEC warned that a sustained increase in oil prices above their current level could erode crude demand next year amid a shaky global economic recovery. The IEA is warning that higher crude prices risk derailing the economic recovery especially if the high prices continue. What do these two traditional advisories see in the price of oil that is raising these concerns? Well they see that the price of oil is getting out of sync with normal measures of supply and demand. They see that the price of oil is being artificially inflated by the global central banks and the amount of fiscal stimulus that is pumping up the prices of all commodities across the globe. Oh sure they both like the demand growth that these fiscal policies have brought as long as they stay in line somewhat with there overall price of oil. Yet there are signs that the investor's appetite for the carry trade could create an unsustainable disconnect between the price and real demand growth.
In the US the dollar gets slammed as the Congress shows no sign of fiscal discipline. Fed officials continue to tell us that interest rates will stay low for the foreseeable future and the traders continue to plow into the carry trade. If both OPEC and the IEA worry that $80 plus oil should derail the economic recovery perhaps we should too.
Today Inventories may move us a bit but as I wrote yesterday oil is locked into a range. The extreme high end of the range has been 81 and the low end around 77. Look to fade these handles. Did you know that you could use gold to satisfy part of your margin requirement as opposed to those shrinking US dollars? What's that you say? You do not own any gold? We can help you with that also! Just hit this link http://www.pfgpreciousmetals.com/index.aspx?ID=638597e5-633d-449a-9787-f7aea282458c to find out more. And did you know that if you tune in to Fox Business News you can see me every day? Well now you do!
We're long December crude from apprx 7727 - raise stop to 7775!
Buy December RBOB at 19200 - stop 18900.
We're short December heating oil from apprx 20750 - lower stop to 20650.
Sell December natural gas at 480 - stop 502.