The Energy Report Tuesday, May 12 th 2009
Oil prices hit a new 6 month high as a chorus of analysts and traders lament that the fundamentals do not justify the move. Yet is oil ignoring the fundamentals or are these traders and analysts just focused on the wrong fundamentals. Oh sure, oil supplies are over flowing and demand is in the toilet, yet the truth is there are some very strong fundamentals behind this move in oil if you choose not to ignore them. In fact traders seemed to ignore some stories yesterday that normally would have been a reason to send oil soaring. So instead of talking about the fundamentals that the market seems to be ignoring, let us focus on the fundamentals that the market is paying attention to or soon will be.
The first is good old fashion inflation. Many times I have spoken about the inflationary and simulative effects of quantitative easing and the value of the dollar and its relationship to crude. The financial crisis has hijacked the oil market fundamentals away from traditional drab focus on supply and demand into a more dynamic concoction of supply and demand and macroeconomics. Oil cares more about its relationship with the dollar and the stock market then it cares about its relationship with the refineries. Yesterday we gotmore inflation news that the market seemed to ignore when the Obama administration found out that their budget deficit will be a lot higher than the projected 1.8 trillion dollars they had projected. The administration was shocked to find out that when you spend a lot more money than you have you tend to run bigger deficits! Wow what a concept! The AP reports that the government will have to borrow nearly 50 cents for every dollar that it spends. The AP also points out that if you took a trillion paperdollars andput them end to end those dollars would rise from the earth to the sun.A big deficit of course means that if the economy does not grow and then we will have to print more money to afford the red ink. Printing more money means a lower dollar and in turn means oil prices should move higher.
At the same time there are signs that the global economic downturn is easing. The Financial Times reports there are hopeful signs in China and Europe but the slowdown in the United States continues. They point to figures from the OECD leading economic indicators thatis showing growth in China, France and the UK. They also report that Jean-Claude Trichet, the President of the European central bank, as saying the global downturn has bottomed out, with some large economies alreadyputting the recession behind them as theylook forward to renewed economic growth. If the world economies grow faster than the US then that will put more downward pressure on the dollar thereby driving upoil.
Many analysts ignored talk from OPEC that they would continue to hold the line on production. Saudi Arabiavowed that it would continue to keep oil production under 8 million barrels a day and told its customers to expect the same amount of oil that they are getting now. OPEC discipline is another bullish fundamental that many traders and analysts seem to ignore.
How about the Story of Venezuela expropriating its oil service companies over the weekend. A story like that a year or so ago would have sent oil soaring. Venezuela owes about 15 billion dollars to those companies and when some threatened to stop servicing the facilities until they got paid Hugo Chavez moved to take them over. As Venezuela's oil production plunges to a 20 year low it seems the daysof President Chavez usingoil as his own personal political piggy bank has not come to an end. As Hugo put it: give to God what is God's andto Caesar what is Caesars. All hail Hugo! Who made the salad? Hugo made the salad. It's only a matter of time before he wears the crown and robe!
Ongoing violence in Nigeria means that not only is Nigeria losing money on fallingoil prices but also losing money because they cannot pump even their OPEC quota. Bloomberg News reports that Nigeria is in early talks with the World Bank on a loan to help finance its budget deficit as plunging oil prices cut government revenue and curb economic growth quoting Finance Minister Mansur Muhtar. Revenue from oil accounts for 95 percent of government receipts in Nigeria.
What I am trying to say is that there are some bullish fundamentals unless you choose to ignore them. Of course if you only chose to focus on fundamentals narrowly then you are really missing the bigger picture.
Buy June crude oil at 5700 - stop 4830.
Buy June heating oil at 14700 - stop 13900.
Buy June RBOB at 15000 - stop 14200.
Buy June natural gas at 350 - stop 290.
The Dan Flynn Corn & Ethanol Report
The July Corn settled 3 1/2 cents higher at 424 3/4.The range was 425 to 420.
Are traders reading tea leaves?
Or our we in a legitimate bull market.
We'll get an early education at 7:30 C.S.T.
Energies remain strong !
Stocks are coming in mostly higher.
U.S. Dollar lower.
Should be a great trading day !
Buckle up your chin strap !
Good Luck and Good Trading !
Open a Futures Account with Dan Flynn today !