Supply versus the printing press. What is more important to the oil market? The supply of oil or the unlimited supply of dollars in Fed coffers.
After its euphoric toxic asset rally, oil seemed to be settling down with the stock market until the Fed came in with the plan to buy treasuries. Yields had been rising after a wildly successful 2 year action suddenly changed course and the 30 year bond reversed and closed higher for the first time in four days. According to Bloomberg News the Federal Reserve included the longest maturity U.S. debt among the securities scheduled to be repurchased in an effort to lower consumer borrowing costs. The central bank will begin buying treasuries today starting with notes due from February 2016 to February 2019. When the plan was announced last week, the Fed had said it would concentrate on maturities due between two and 10 years. Notes fell as the government sold a record $98 billion of new securities this week. The Fed's sudden attraction to longer dated maturities sent oil on a late day run digging itself out of its hole with little regard for what the upcoming supply situation might be.
That was until the market was brought back down to earth by another massive crude build reported by the API. It is tough to ignore the fact that the API reported another whopper 4.6 million barrel increase in crude supply last week giving pause to even the most bullish oil trader among us. The surge in crude supply has to be described as a glut especially considering the fact that weekly crude runs were off by 70,000 barrels a day. As much as the market wants to focus on the prospects of better demand in the near future the here and now suggests that demand is terrible. And even with gas supply falling by 805,000 and distillates 1.6 million barrels, the evidence of a demand comeback is yet to be seen.
But does demand matter? The Fed can rally oil anytime it decides to buy treasuries and they proved that yesterday. If the economy slows thus pressuring oil because demand is bad due to a weak economy, the Fed just can print a floor under oil. When they print money the dollar gets weaker. That is why China wants a global currency. Of course if they get their way then how can they get an unfair trading advantage if they have no dollar to peg their Yuan to.
You cannot fight the Fed yet at the same time the heavy supply situation means oil will have a hard time going straight up. Be patient on your entries. Long term traders wait for a big break. Day traders have got to love the action!
Yet globally are supplies tightening? Dow Jones News reports China's biggest listed oil firm by output is keeping capital expenditure stable in 2009, but cutting oil and refinery output. China's oil demand is expected to stay strong. PetroChina's oil output is expected to fall 4.3% to 832.8 million barrels in 2009, while refining output is likely to fall 1.4% to 837.9 million barrels.
Today the Department of Energy is releasing the all important and exciting supply report that may keep the sell off going!
Buy May crude at 4530 - stop 3900.
Buy May Heating oil at 12300 - stop 11400.
Buy May RBOB at 12500 - stop 12300.
Buy May natural gas at 400 - stop 377.
The Dan Flynn Corn & Ethanol Report
Wednesday March 25th 2009
Good Morning !
The late craziness in yesterday's Day session in Grains spilled over into the night session.
The May Corn settled at 389 3/4 down 4 cents.
The range was 394 1/4 to 389 3/4.
Funds appear to be long at this time.
Farmers will be selling if prices become attractive.
It will become the force of the Bulls vs. the Bears.
I still anticipate a drive to five. However, we must get a significant close above $4.
On the Energy Front we have weekly inventory numbers
due out today at 9:30 C.S.T. I expect a bearish number and lower trade prices.
Have a Great Trading Day !