Wild ranges and a lot of action!
After it was all said and done, we basically ended up where we started. Oil prices were once again just a pawn of the foreign exchange market as the EURO started the day absolutely getting crushed over the Greek debt crisis. The Financial Times points out that the Euro hit the lowest level against the Swiss franc since the Euro came into existence in 1999. The Wall Street Journal said that the euro started the trading day on a weak footing after German Chancellor Angela Merkel ruled out discussion of an aid package for Greece when European leaders gather at a meeting scheduled for Thursday and Friday. The currency dropped as low as $1.3463 after Greece Deputy Prime Minister Theodore Pangalos warned that the integrity of the euro zone could suffer should EU leaders fail to support Greece. The dollar became safe haven fodder and the commodities got hammered.
It looked like the risk trade was getting ready to collapse before European Central Bank Chairman Jean Claude Trichet stepped in to save the day. Well at the very least he stepped in to save the Euro.
Jean Claude said that Greece was courageous. Did he say courageous? Yep, that's what he said. Dow Jones reported that austerity measures adopted by the Greek government to slash its budget deficit are "convincing and courageous. Participants in financial markets will eventually recognize this as well, said Trichet, who repeated that the notion of a country leaving the euro zone was absurd. The single currency is not a la carte, "We share a destiny in common." Well market participants seemed pleased and the euro reversed course. That brought the oil back as well reversing its earlier sharp gains adding more excitement to the expiration to the April crude futures. For bulls and bears, the moves can be maddening unless you realize that oil is just in a range. I have been saying for months that oil is in a big trading range and will eventually break out on the downside. Yet as the outlook for US interest rate being still in that low for an extended period language the range goes on.
It appears that I am not the only one who feels this way. Dow Jones Newswires reports that The International Energy Agency said, “Oil price risks are skewed toward the downside, but prices will most likely drift in their recent range for the rest of the year", quoting International Energy Agency Deputy Executive Director Richard Jones. He said that the price outlook hinges on oil demand growth and, "our prognosis is that there won't be many." But eventually, in the next three to four years, new oil production, particularly from Brazil and West Africa, will weigh on prices. As far as that production goes Dow Jones says that, “The first of three floating production, storage and offloading vessels is due to start producing from Ghana's 700 million barrels of oil equivalent Jubilee field before the end this year at a maximum capacity of 120,000 barrels a day", Tullow Oil PLC's (TLW.LN) Chief Operating Officer Paul McDade said earlier this month.
Brazil's Tupi field holds an estimated 5 billion to 8 billion barrels of recoverable reserves. The initial development phase is expected to commence in late 2010, with initial production of up to 100 000 barrels a day, BG Group, which has a 25% share of Tupi, said on its Web site. Jones told Dow that a recovery in U.S. oil demand so far hasn't been strong. While there have been some encouraging signs of growth, energy intensity per GDP unit in the U.S. have dropped. Growth may not come back as strong as it was prior to the economic downturn, Jones said.
Instead of cursing the trading range, just play it! Buying oil or selling oil at the extreme ranges of the daily charts has been very profitable. Try to take into account volatility as well as the fundamental outlook and adjust accordingly. Yesterday could have been a banner day yet if you are stubborn with a bullish or bearish ideology you may be missing the boat.
You can contact analyst Phil Flynn at pflynn@pfgbest.com You can also see Phil on Fox Business Network every day.
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