If gas prices are the main reason that retail sales and the Producer Price index were up, then we may have bigger oil price deflationary fears than previously thought. Gas prices that were rising are now falling, unmasking the stronger than expected boost in retail sales as well as a bigger jump in producer prices. Despite an early pop in oil prices, the market shook off an early rally closing lower as weakening demand fears still permeate the energy complex. Even as oil gets a boost overnight trying to feed off some better than expected earnings from Intel and a resurgent big banking sector, the truth about the economy and the overwhelming supply still is sobering for this battered oil market. Demand seems to be getting worse not better.

For example, take this story written by Barbara Powell of Bloomberg. She reports that U.S. gasoline consumption fell 4.3 percent last week to a six-month low as fuel use in some parts of the U.S. plunged as much as 30 percent on the July 4 holiday, quoting the MasterCard Inc SpendingPulse report. The report said motorists bought an average 9.021 million barrels of gasoline a day in the week ended July 10. That is about 4.3 percent less than a year earlier and 6.3 percent lower than the week before. Bloomberg quotes Michael McNamara as saying that because the Fourth of July was on a Saturday this year, fewer Americans took to the road and that has not happened 1998. The report covers consumption from July 4-10 and does not include July 3, the federal holiday that began the three-day weekend. Also higher unemployment and heat in the South and Southwest and rainy, cool weather in New England also reduced driving last week. Demand on July 4 was down as much as 30 percent in some regions and was weakest in the Midwest and Rocky Mountain areas. Fuel use last week was the lowest since the period ended Jan. 9 and followed two weeks of the year's highest consumption. Demand in the week ended June 26 reached 9.7 million barrels, the most since Dec. 21, 2007. Demand in the week ended July 3 was 9.63 million barrels, the year's second-highest. 

Still it seems that gas demand, like the economy, hit a brick wall. We are seeing signs that the economy is slowing. Last night the American Petroleum Institute (API) released their report and showed that crude stocks fell by 1.2 million barrels. Now before you get too excited, at the same time they reported that supplies at Cushing, Oklahoma, the Nymex delivery point, actually increased by 1.3 million barrels. Gas supplies reportedly fell by 69,000 and distillates up 656,00. For the Energy Information Agency Report, demand will be key!

The Fed minutes today are something to watch. Will the fed tip their hand about the possibility of an expansion of its quantitative easing program? If they seem open to it, oil should get a boost.

Sell September crude at 6200 - stop 6440.

We're short August RBOB from apprx 16570 - stop 16770.

Sell August heating oil at 15800 - stop 16300.

We're long August natural gas from apprx 330 - raise stop to 333!!!

Corn & Ethanol Report

The December Corn settled at 347 which was up 1 1/2 cents. The range was 347 to 343 1/2.

This market continues to test support and bounces. Is the table set for another break.

Watch the weather in Corn growing regions. On the Energy Front the complex looks like another dead cat bounce. We await the weekly inventory number to change the bearish sentiment.

I anticipate this market to drive to further lows !

Have a Great Trading Day !