Bottom's up. A toast to Fed Chairman Ben Bernanke who says the economy is bottoming and should turn up by the end of the year. I will drink to that. Of course did we really need Ben to tell us that? I mean the market has been signaling that opinion for some time.
Not only have we seen in the resurgent equity market and the plunging VIX index, falling Libor rates and we have seen it in the strength of the oil market that has made new highs for the year. Now I know that we are in for some rough days ahead and some of the banks are already shocked by how much money they may have to raise.The government reports that Bank of America has to raise $33.9 billion which is a lot more than they thought. Yet oil demand optimism and economic optimism seems to be spreading around the different market places like H1N1 flu.
And it is not just a US recovery that has oil firming asthere are signsof a global recovery as well. Earlier this week it was the Chinese PMI number that gave oil bulls some momentum. Now today a better than expected number out of the UK as their PMI came 2 and a half points better than expected at 48.7.
We should get further support for oilfrom the energy supply report from theAmerican Petroleum Institute and the weekly Department of Energy supply report. Why? Well perhaps because almost every analyst on the street, except for me, is convinced we will see an increase in crude oil supply. Last night the API report showed that crude supply actually fell by one million barrels. A smaller draw than I expected but a draw none-the-less. A corresponding draw from the DOW when everyone is betting on another build should help oil add to its gains. At the same time the API reported that gas supplies fell by a larger than expected 2.90 million barrels. A sign that demand is improving perhaps? Or maybe those refiners are still indifferent to increasing supply. It was probably a little of both. The API also reported that distillate inventories increased by 1.01 million barrels.
So once again the reason why oil is rising is because ofhopes that the economy can recover at a time when OPEC is cutting back on production. Oil is going up because OPEC compliance is at a record high.It is going higher because of the inflationary and simulative effects of Fed policy and it is going up because of a faster than expected recovery in the Chinese economy. Oil is rising as the market is pricing in a brighter future and as rig counts are falling. Is this fair for oil to increase at a time when supply is so high? Who is to say what a fair price is other than the market place. We have seen a shift in what is fair because of a historic global coordination of fiscal stimulus that has changed the scale of what one might think a fair price for oil ought to be.
You may think that despite this oil will still will have to collapse at some point due toheavy supply but perhaps not if demand comes back faster than expected. Listen: if the economic signals start turning south, oil will also but I see and hear from too many people that are getting hurt fighting this trend. If oil closes above $55.00, the charts will look enthusiastically bullish and should target us to a new higher trading range that could extend to near $70. The bears need this market to fail and top now or the risk of being short could go up dramatically. And even if we fail to break out it might seem the downside would be limited and would most likely stay range bound. If the bulls have their way it would seem the upside profit potential for the bulls would be higher than the profit potential for the bears. At this point we'll probably see a trading range resume in the low thirties to the mid forties.
Buy June crude oil at 5100 - stop 4830.
Buy June heating oil at 14000 -stop 13700.
Buy June RBOB at 15200 - stop 14700.
Buy June natural gas at 320 stop 290
The Dan Flynn Corn & Ethanol Report
The July Corn settled at 406 which was up 3/4 of a cent.The range was 407 to 403.
Three factors weigh heavily in this market.
The U.S. Dollar and Stock Market and withthe rains looming and Farmers trying to play catch up inplanting will be the major factors in trade.
Energies look to trade higher going intotodays weeklyinventory numbers.