The Energy Report for Wednesday June 3, 2009

Crude oil prices seemed reluctant to rally as long traders fat with profits seemed more focused on protecting their bounty as opposed to really going for it. Still the market embraced the notion of $69 a barrel being badgered to go for it by the Rodney Dangerfield US dollar (as in I can't get no respect) to awelcome surge in pending home sales and boost in auto sales.The dollar was still getting pounded as Treasury Secretary Tim Geithner swears he and his buddies will swear off the spending someday as soon as universal healthcare is in place. Well maybe he didn't put it quite that way but let us face it from listening to what he said neither the market nor the Chinese seemed veryimpressed. The dollar hit a new low against the euro for the entire year. Maybe Mr. Geithner should have just asked the Chinese to pay for our universal health care directly as opposed to trying to convince them to buy our normal treasury bonds. Maybe we should offer the Chinese a new issue called universal healthcare bonds. Or maybe green energy bonds so at least the Chinese would know where there money is going. Then maybe the Chinese would continue to keep buying our growing mountain of debt as opposed to hedging their weakening dollar portfolio by buying oil, gold, grains and copper.

And if you thought the Chinese were not impressed with Mr. Geithner assurances on the dollar well neither were the Russians.In another slap right across the face of the greenback, the Russian government warned that emerging-market leaders may discuss the idea of a supranational currency at a meeting this month.Sort of like a supernatural currency that would be the world's currency of choice. The biggest hurdle of course is for the Chinese to try to figure out a way to manipulated it to its own advantage.

So yes the dollar and all of its side freak shows surrounding it has been a major factor in the oil rise but it is not the only factor. In recent weeks big draws in crude oil stocks helped embellish the bullish momentum that really was created by the macro-fundamentals other than just traditional measures of supply and demand.Yet yesterday even the plunging dollar seemed to not give oil the kind of strong boost that it might have earlier in the week as the buyers of oil became a little less aggressive after a seven day bullish run.

As much as people want to say that the energy markets are ignoring the supply and demand data I think that today's EIA data may be critical as to whether or notoil continues its incredible strength or whether it takes a well deserved rest and correction. This market has been building up on a mountain of good feelings and expectations and after this run it may need some morereassurance if we want the buy orders to continue to come in.

The weekly energy stocks report from the American Petroleum Institute seemed a bitless than inspiring as the API reported a crude draw of only 828,000 barrels partially helped by an increase in imports. The market actually needed a drop of a couple of million barrels or more to get overly excited. Gas supplies actually rose by 99,000 barrels and distillates rose by 3.4 million barrels. Not really the type of numbers that will get you bullish juices flowing. We would like to see big draws on the EIA today to really get this market juiced back up. We are still bullish but be on guard for a correction!

Still this morning the European manufacturing number this morning came out better than expected following better than expected manufacturing numbers in the US and China. A leveling out and potential bottom in manufacturing is signaling the we may be nearing the end of industrial demand destruction.

Natural gas continues to be a fascinating story. It is less influenced by the whims of the global Forex market and sitting with big supply and the promise of new supply from new sources. An interesting story reported by Reutersthat the chairman and CEO of pipeline and storage company Kinder Morgan Energy Partners LPsaid Tuesday huge untapped reserves of shale gas are actually bullish for the natural gas industry, a contrarian view for most in the energy business.I would look at the overall shale situation as very bullish for the industry, very bullish for a midstream company like Kinder Morgan, Kinder told the Reuters Energy Summit in Houston.Upstream folks will tell you we have '100 years of natural gas supply' that we know we can access in the lower 48 without importing any LNG. When you look at a way to solve the CO2 problem, natural gas has got to be an enormous part of that solution and now we know we have the supply to do that, Kinder said.He added, We are going to have a lot of supply and more need for natural gas transportation in this country, the place where Kinder Morgan steps in as the second largest gas pipeline system in the nation.

Kinder said there was no question shale gas is having a severe impact on prices and he expects that to continue until drilling rates cut back and demand improves as the economy picks up.What the upstream sector has done in the natural gas field, strictly with the shale plays is just a dramatic improvement. The common accepted knowledge just a couple of years ago was, 'we're depleting our resources in the lower 48, the imports from Canada are not what they used to be and we need all the LNG we can get,' he said.Kinder said shale plays and vast improvements in horizontal drilling techniques have led to much more access to natural gas production and a much greater impact on prices.Kinder also said gas storage has been pushed to near record highs this year but cautioned the summer and hurricane season are still ahead. Great stuff from Reuters! Check it out!

We're long July crudefrom apprx 5959 on the roll - raise stop to 6450!!!
Buy July heating oil at 16200 -stop 15700.
Buy July RBOBat18200-stop 16900.
We're longJuly natural gas fromapprx 390 - raise stop to stop 367.

The Dan Flynn Corn & Ethanol Report

The July Corn remains in a profit taking mode.

The contract settled 3 1/2 cents lower at 446.

The range was 450 to 445 1/2.

The Dollar is bouncing off their lowsin a profit taking mode as well.

The June Dollar is up 51 tics as I write.

In the Corn and Ethanol markets: The Song remains the same.

Our focus is weather, U.S. Dollar and Stock Market.

Advances and declines follow the fundamentals.

Have a Great Trading Day !