Printing Money Never felt So Good.

Forget North Korea. If you really want to see something shot into orbit just take a look at the oil market. Oil prices continue their advance and could make a new high for the year as the market drives higher on macroeconomic meddling.

Printing money never felt so good especially if you are long oil. Since the Fed decided to play the quantitative easing card oil once again has become a pawn in the global desire to find safety and profit. Oil is being influenced and is on an upward track by the same type of monetary conditions that drove oil to historic highs. Even the yen carry trade is back and the dollar/euro spread is making gold less attractive but not oil. Now that the market thinks the worst is over in this global economic nightmare, the attraction to risk has become more appetizing and the oil market will be the bullish beneficiary. Gold was the safe haven just weeks ago is now an afterthought as the market place is looking to the foreign exchange and petroleum to hedge their future.

Yet when do higher oil prices hurt the economic recovery? Well the summer driving season might be a key indicator of how bad the economy is hurt. People losing jobs will cut back on vacations especially if gas prices go through the roof. Gas prices might also get caught up in the oil rally excitement. Last week the EIA reported that the price of gasoline should stay below $3 a gallon. The EIA says that although the future market conditions are highly uncertain, EIA does not see gasoline prices climbing to the $3 level this year. Yet it does seem likely that gasoline prices will average more than $2 per gallon this summer. On average, prices of crude oil used by U.S. refiners have risen by about $17 per barrel, which translates to about 42 cents per gallon. As such, higher crude oil costs account for most of the increase in retail gasoline prices seen over this period.

Production cuts from OPEC are one factor strengthening crude oil markets, but steadying gasoline demand may also be bolstering both crude oil and gasoline prices. The EIA says that the year-over-year decline in gasoline demand experienced at the outset of 2008 deepened steadily throughout the summer, bottoming in September under the weight of very high gasoline prices, eroding economic activity, and hurricane related disruptions. Some recovery in gasoline demand is now evident, given newly published monthly data for January 2009, which showed that the decline rate had shrunk to 1.4 percent from the 4 to 6 percent rates seen last summer prior to September’s exaggerated drop. While the monthly January 2009 data again revised downward gasoline demand initially estimated from weekly data, the monthly figures showed a smaller decline than the 2.5 percent rate based on weekly data.

Still despite the fact that we have plenty of supply, plenty of oil and plenty of spare refining capacity, can the macro-economic play stay strong enough for gas prices to defy gravity and still drive higher? With the seasonal patterns being as bullish as they are and the fundamentals focused on currency, the move in oil can be very explosive. Do not stand in front of it unless you are looking for a short term correction. I was hoping for a big sell-off to get long for a position trade but it looks like because of the seasonal factors and the increasingly bullish macro fundamentals, we could be running out of time. Still with the supplies at the highest levels since 1990 we should still see some volatility. Call me for strategies to get long if you are afraid to miss the move. Conservatives traders - if you wait you might miss this bus and have to wait for the next one.

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