Friday, April 16, 2010

Phil Flynn: Crude Oil is Having a Hard Time Following Through


Oil is having a hard time following through on its bullish momentum especially which is particularly disappointing to the bulls especially after China’s red hot GDP numbers. Strong growth numbers out of China seemed to not inspire the type of buying frenzy that one might imagine. Mixed data out of the US and the fact that oil should be getting close to a seasonal peak perhaps is weighing down the marketplace. China did take some steps t o try to slow their economy down from overheating by attacking surging real estate prices and that may be another reason why China’s surging prosperity didn’t trickle down to the oil market. The Financial Times reported that the Chinese State Council said that anyone buying a second home in China would need to put up a 50 per cent deposit up front. That is up from 40 per cent previously. First time homebuyers in China buying homes s bigger than 90 square meters have to put up 30 per cent. The Financial Times says that China instead of raising rates like Australia and India, China has targeted a 22 per cent reduction in new loans from a record $1,400bn last year and twice asked lenders to set aside more cash as reserves.

The last time China's growth accelerated to more than 11 per cent, in the first quarter of 2006, the central bank raised rates within a month. Still the Times said that China's cabinet signaled caution in ending crisis policies, saying first-quarter economic growth was largely driven by stimulus policies and a comparison with low levels in 2009. I think the bulls would like to end the week with the front month closing over $85 to confirm their bullish aspirations which is getting harder to do as we are seeing a lot of rolls continuing from the May into the June and other contract. June has more open interest now yet with record volume and a lot of rocking and rolling to do we could see the contango continue to widen.

The other factor holding oil back is the dollar. The dollar seems to be gaining strength on the ongoing on again off again Greek worries. Oh no. It’s not resolved yet? The Financial Times reported that “Greece capitulated to market pressure yesterday and took an important step towards a bailout from its Eurozone partners and the International Monetary Fund as it formally sought "consultations" over a €30bn-plus loan package to stave off default.” With uncertainty surrounding the latest bailout once again going into the weekend traders may seek the safe haven of the dollar so they can sit back and enjoy their recent stock market profits. Yes that soaring stock market has also provided support. Yet the run while impressive may face some profit taking especially after Google missed the whisper number

Natural Gas’s little foray above $400 ended in an ignominious fashion. The EIA reported that wworking gas in storage was 1,756 Bcf according to EIA estimates. This represents a net increase of 87 Bcf from the previous week and a whopping 16.3 per cent above the five year average. So much for that preseason hurricane premium. Of course ample supplies o cheap natural gas is the unsung hero and a part of the incredible manufacturing come back. Think of the natural gas price as an economic stimulus package that the taxpayer does not have to pay for. We still feel the best way to trade energies and other commodities at this point is to trade the ranges.

Phil can be reached at pflynn@pfgbest.com And make sure to watch him on the Fox Business Network broadcasting all weekend long!

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