Phil Flynn: Terror Premium Is A Cost Of Doing Business

What was striking in the Friday reports about the attempted mail bomb terror attack was the market's indifference. The market has already priced in a certain amount of terror possibilities and in a way we are paying for it every day. We are paying for it in the cost of insurance and freight and we are paying for it in terms of even higher commodity prices. It's sad that we have come to expect this type of evil in the world. Today oil is getting a boost out of strong data from China and India.

The Chinese official purchasing manager's index rose to a six-month high in October to 54.7 from 53.8 in September. The market was only looking for a 52.9 reading. The strong number brought back the risk appetite and rallied the oil and broke the dollar. The HSBC version came in at only 54.8 but did have one of the biggest month to month increases in history. With readings like these it is no wonder that China is trying to slow its economy down. The main driver for the market this week will be the Fed. Now everyone knows that the Fed and the size of its massive QE2 program and how it is implemented will be the main factor in the pricing of oil and all other commodities.

People are finally getting the fact that it has been the Fed and the different phases of this economic crisis that has driven the cost of oil, NOT SPECULATORS! US product exports should be strong again in this week’s reports. Oil Inventories are still at the highest level since the 1930s! Look for crude to be down 2.0 million barrels, gas down 2.0 million, distillates down 2.5 and runs up 0.5.

Watch Phil on the Fox Business Network every day. And get his trades by calling him at 800-935-6487 or email him at pflynn@pfgbest.com.


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Phil Flynn: Shock and Bore

Promises, promises, quantitative easing the act of printing money to add excess money supply to the banking system by central banks to create inflation to combat deflation has been the policy tool that the Federal Reserve has used to in their mind have us avoid a “Great Depression”. Of course with the economy still sputtering and jobs growth anemic the Fed wants to do it to you one more time. The talk of “Quantitative Easing 2” by your Federal Reserve has been the overriding global economic force that driven the price of just about everything on the globe whether it be commodities or equities or bonds.

The anticipation of the Fed’s awesome money printing power has had the world markets giddy with excitement as they search for clues how the Fed was going to wow this moribund economy into a vibrant job creating monster. Yet if the Wall Street Journal is right then instead of QE2 being compared to a luxury liner it appears now that the market may compare it to a dingy. The Wall Street Journal is moving markets by reporting that the Federal Reserve is likely to unveil a program of US Treasury Bond Purchases worth a few hundred billion dollars over several months. A measured approach in contrast to.....Read the entire article.


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Phil Flynn: Currency Détente

All we are saying is give peace a chance. Global leaders on a collision course towards an all out currency war pulled back from the brink of conflict by vowing not devalue their respective currencies to try and help their export markets. Forget the fact that the US is on the precipice of a major announcement involving the printing of a bunch of greenbacks and China is looking around saying “who us?”.

The perception by the market place that the G20 will do nothing to stop a drubbing of the dollar is sending the yen soaring to a 15 year high and the oil and other commodities soaring in early trade. In fact you might wonder why the oil market is not even stronger than it is considering the fact that not only is the dollar giving us support, but also the impact on the strikes in France that are going to take a toll on US supply. The AP reports that, “French Finance Minister Christine Lagarde says the country's massive strikes are costing the economy up to euro400 million ($562 million) each day.

Protests over President Nicolas Sarkozy's plan to raise the retirement age from 60 to 62 have left France struggling with fuel shortages, travel chaos and uncollected garbage. Lagarde told Europe-1 radio Monday that the daily economic cost is between euro 200 million and euro 400 million. The minister also says the strikes are damaging France's image abroad......Read the entire article.




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Phil Flynn: French Fried

Alright, I admit it was kind of fun snickering about the French Strikes. You know like joking about the French work ethic (assuming they had one). You know the routine. The French have been striking and staging mass protests that have turned violent as the government moves to take away French entitlements they cannot pay for. The French are to vote on raising the retirement age from 60 to 62 (Sidérer!!!). With an aging French population and years of the government giving the country free goodies, the government is going to have to make much needed reforms or face an inevitable economic collapse.

The strikes have shut down 12 oil refineries in France leading to shortages of diesel and gasoline. The International Oil Daily Reported that, “lost French production is driving dramatic price gains in diesel and jet fuel in Europe, France’s 12 oil refineries, all but one of which has been shut down by national strikes, produce around 60,000 tons of diesel and 30,000 tons of jet a day. But even with refineries at full production, the country is a net importer of both products. Minimal domestic production means France is sucking in products from neighboring Germany, Italy and even Spain, as well as drawing from strategic......Read the entire article.


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Phil Flynn: Paying the Price for an Economic Recovery

While the Fed tries to sell us the virtues of inflation, the poor consumers at the pump are getting soaked. As oil prices rise and French strikers strike, we see the national average retail gas price start to surge as the price increased to $2.834 a gallon which is the highest price since May 17th. Retail Prices have surged close to 14 cents a gallon in three weeks which just happens to coincide with the price increase that we have seen in crude since the September, 21 Fed meeting.

Since the Fed sent the signal that the printing presses were about to roll we have seen crude add over 11 dollars a barrel from peak to valley, a move that has had an immediate impact on the price of oil at the pump. Gas prices are 26 cents, or 10%, above a year ago while demand for gas hit the lowest level in almost 8 months. Demand for gas is running about 4.8 percent below last year while gasoline stocks are 4.3 percent above a year ago. The threat of quantitative easing, while giving the stock market a lift, is giving consumers the squeeze. A fine price to pay to save the economy......Read the entire article.


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Phil Flynn: Do You Remember When OPEC Used To Matter?

It seemed like the greedy cartel held the fate of the global economy right square in their hand. Press people would stalk different oil ministers desperately trying to get a comment or a clue to whether or not they would dispense their favor on the world and pump more oil or cut production and thumb their nose at the world.

These oil ministers loved the attention. For a couple of weeks a year they were like rock stars with paparazzi following them all around. Not bad for an evil cabal of market conspirators. Yet now, even though some press is attending the OPEC meeting, the guys are not getting the attention that they are used to. It is kind of like a celebrity on the decline that is quickly becoming yesterday’s news. There is no OPEC drama.

OPEC is living the economic dream. They are one of the biggest beneficiaries of the global economic crisis. OPEC is going to leave their production quotas unchanged and will continue to cheat on production as the opportunities arise. Why change things now when times are so good? Heck why constrain production when you have the global central banks around the globe doing your heavy lifting for you?

OPEC should get on their knees everyday and thank their lucky stars for a guy like Federal Reserve Chairman Ben Bernanke who is turning out to be OPEC’s best friend. Why Ben Bernanke? I will tell you why......Read the entire article.


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Phil Flynn: Be Careful Of What You Wish For

The Federal Reserve wanted inflation and inflation is what they got! The Feds plan to restore activity to the economy by printing money and inspiring people to spend may have hit what you might call a reality check. While after a very weak jobs report showing that the economy lost 9500 jobs increasing the odds of quantitative easing, a report released simultaneously from the Department of Agriculture shows the perils of this policy. The USDA dramatically lowered its corn stocks to the lowest level in 14 years.

Corn shot up to the daily price limit sending shockwaves across the grain complex and the stock market as well. The Wall street Journal reported that, “A steep cut to U.S. corn harvest estimates triggered a rash of trades by investors who bet that tighter corn supplies could keep rippling through the stock market.“ “Analysts called the U.S. Department of Agriculture report a shocker. It shaved a record 6.7 bushels per acre from last month's corn yield estimate, pushing the figures well below.......Read the entire article.


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Phil Flynn: Give Me That Old Time Inflation

..... it's good enough for me. The Federal Reserve has changed sides! Can you believe that the Federal Reserve is rooting for inflation! I mean that is like Superman rooting for the communists. The Feds' mission has always been to fight inflation, not create it. Yet that is exactly what they are doing. Of course the truth is, regular readers of my reports have known for years that the Fed joined the inflationary dark side of the force.

The Fed wants commodity prices higher to inspire economic activity as business start to fear that use it or lose it in relation to the spending power of their devalued dollars. The Fed wants inflation and they know how to create it and you cannot get in the Feds way. It is as I wrote the day after Quantitative Easing 1 March, 2009 when I said, "I fought the Fed and the Fed won. I fought the Fed and the Fed won.

Needed money so they printed some, I fought the Fed and the Fed won." I went on to say, “ do not underestimate the way this Fed can change the marketplace. The Fed's timing of this move to quantitative easing still has the market coming to grips with the shorter and longer term effects on the economy and the markets. The one thing that is for sure is that the rules of the game have changed.

And when it comes to a knife fight and Fed power, there are no rules. Someone say one, two, three, gold! In a blink of an eye the Fed, with its unlimited power to print money, can change the dollar value of a commodity or its long term trend in an instant. By creating inflation and money out of thin air they can.......Read the entire article.


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Phil Flynn: It’s A Barrel Buster!

Crude oil rises after a barrel busting report. US total petroleum supplies hit the highest level in 29 years. Crude stocks are the highest since 1980. Gasoline supplies, the highest levels since 1990. The forward demand covers for supply, the highest since 1995. Demand for petroleum products dropped a whopping 6.4% and prices rise! So I guess this quantitative easing thing is a way to help oil companies and their bottom line. The Fed wants inflation and the Fed gets what it wants and is even thinking about going beyond their informal target rate. The Fed fear deflation and believe that the best weapon against it is inflation real or not.

The Wall Street Journal says that, “the rationale is that getting inflation up even temporarily would push "real" interest rates nominal rates minus inflation down, encouraging consumers and businesses to save less and to spend or invest more” Let’s see how that works for you. At the same time the US and China are getting testy about the currency rate as the Chinese are saying that forcing them to revalue or devalue their currency would lead to a disaster for the world. The set up is so bullish and commodities continue to......Read the entire article.


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Crude Oil Inventories Climb as Refinery Processing Drops

U.S. oil supplies probably rose last week as refineries undergoing seasonal maintenance cut their processing rates to the lowest level since April, reducing demand for crude, a Bloomberg News survey showed. Stockpiles gained 400,000 barrels, or 0.1 percent, from 357.9 million, according to the median of 13 analyst estimates before an Energy Department report tomorrow. Gasoline stocks were unchanged in the survey and distillates fell.

Oil prices climbed above $80 a barrel to the highest level in eight weeks after the Energy Department last week reported declines in supplies of gasoline and distillate, including heating oil and diesel. Oil stocks were 13 percent higher than the five-year average in the week ended Sept. 24. “We’re in the heart of maintenance season, so we’d expect a little bit of an increase in crude and a little bit of a drop in products,” said Phil Flynn, a Chicago based analyst and trader with investment adviser PFGBest. “Refinery runs are going to continue to be low.”

Refineries probably operated at 85.3 percent of capacity, down 0.5 percentage point from the previous week, according to the Bloomberg survey. That would be the lowest level since the seven days ended April 2. Rates dropped 2 percentage points in the week ended Sept. 24, compared with a forecast decline of 0.6 percentage point. Eight analysts forecast oil supplies increased last week, four projected a decline and one said there would be no change.....Read the entire article.


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Phil Flynn: Rate Ruckus

Is the winner the country that has the most ink? Gold prices soar to a new record high as once again a global central bank decides to print their way to prosperity. The Bank of Japan gave gold another reason to make a new high by announcing what Dow Jones Newswires says is, “an ambitious” Y35 trillion monetary easing program to spur economic growth while cutting interest rates to virtually zero and launching a Y5 trillion program to buy private and public sector assets. Ambitious?! Boy, I’d say.

I guess there is more than one way to intervene in your currency. The Japan government is adding more stimuli while reducing the confidence in paper money. Looks like a golden opportunity to buy more gold. Perhaps it's time to buy black gold as well. Oil traders love to exploit devalued currencies and devalued confidence in the same way. Yesterday the oil market ignored the rebounding dollar and supplies that are 13% above the five year average and instead returned to focus on the shutdown of the Houston Shipping Channel that was shut down when a barge hit an electrical tower.

That disruption helped send oil to an eight week high. Dow Jones reported that U.S. Coast Guard says that the 3 1/2 mile stretch of the Houston shipping channel will likely be closed until late Tuesday so that low hanging power lines and a listing tower can be cleared away. The closure will affect crude deliveries to four refineries in the Houston ship channel. Dow says that the tower, which carries one of three transmission lines into Exxon Mobil Corp.'s (XOM) Baytown refinery, was struck.....Read the entire article.




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Phil Flynn: Easy Oil

Who has the second largest amount of proven conventional oil reserves or easy to get to oil? Well if you asked me yesterday the answer officially was Iran but today that all may change. Iraq has announced that they will increase the amount of their proven oil reserves from mere 115 million barrels of oil to a whopping 143.1 billion barrels of oil putting them in second place in the world of cheap, easy to get to oil. Dow Jones reports that the figure, the first update since 2001, would mean Iraq has the world's second largest reserves according to statistics on the OPEC website.

Iraq would take second place from Iran, which has 137.01 billion barrels of proven reserves, but would still be far behind Saudi Arabia, which has 264.59 billion barrels of proven oil reserves, according to OPEC figures. These aren't random figures, rather they were the results of deep surveys carried out by the ministry's oil reservoir company and international companies which signed contracts with Iraq," al-Shahristani said. "Most of these figures were the result of surveys conducted by these international companies, especially at oil fields such as West Qurna and Zubair." Dow Jones say that Iraq has signed 12 deals with international oil companies to ramp up.....Read the entire article.


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Phil Flynn: Peak Oil Mirage

The closer we get to peak oil the further it goes away. As high prices collapsed when the global economic system fell apart the world is now awash in oil. Back around the beginning of this decade Fed Chairman Allan Greenspan warned that peak natural gas production in this country could put us in a competitive disadvantage.

Now it appears that some of the same ideas that took us from peak natural gas to an abundant supply could also change the supply outlook for oil. The Financial Times is reporting that, “A band of entrepreneurial oilmen have found an economic way to extract oil from shale rock, fuelling a frenzy for prospects that has pushed up lease prices and lifted hopes of the first rise in onshore US oil production in decades”.

The Times says, “These small independent oilmen had used hydraulic fracturing and horizontal drilling to triple estimates of US natural gas supplies and are now applying that same technology to get oil from shale rock”. The FT says that the method could add one million barrels of oil a day to US supplies in five to eight years replacing 10 percent of US crude imports. And that might just.....Read the entire article.

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Phil Flynn: How Fed Saved Oil And OPEC From A Total Price Collapse

The Federal Reserve promise to maintain the target range for the federal funds rate at 0 to 1/4 percent and maintain its existing policy of reinvesting principal payments from its securities holdings to provide additional accommodation or a second round of quantitative easing if necessary, helped the oil market ignore some of the most bearish fundamentals in decades. Just this week the Energy Information Agency reported that total U.S domestic oil product inventories hit 768.1 million barrels which is the highest level since 1990 since the Energy Department began reporting weekly data.

The figure doesn’t even include ethanol stockpiles which add to the bearishness and the fact that demands in this shoulder season is even weaker than normal. With an economic outlook that is deteriorating and a glut of supply, oil prices should be getting annihilated yet despite this historically bearish outlook, oil losses in the weakest demand period of the year are only modest. The Feds impact on the price of oil is an undeniable fact and there are many reasons for that. First and foremost is the impact of that policy on the.....Read the entire article.

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Phil Flynn: The Autumn Un-Equinox

Gold sizzles, oil fizzles in the aftermath of the Fed promise to reinflate the economy. Oil and the leafs are beginning to fall as demand for oil and the economic outlook continue to weigh heavily. The disparity between gold and oil recently seem to reflect the despair that we are feeling from the FOMC committee or perhaps the Obama economic team. Now this morning the market fears that demand for oil may fall in Europe as well after a euro zone purchasing managers' survey fell to 53.8 in September from 56.2 in August the slowest pace in 7 months.

While their manufacturing sector is still expanding the market was looking for a number closer to 55.7%. This slower pace comes a day after a very bearish Energy Information Agency report that showed a surprise increase in crude supply and a depressing feeling on demand. If you were worried about the impact that the Enbridge pipeline shutdown and inclement weather might have had on supply I guess you shouldn’t have because supplies increased anyway. Crude defied expectations rising by.....Read the entire article.

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Phil Flynn: Crude Oil And The Fed

The Fed did not inspire the oil market even if they laid the groundwork for more quantitative easing in the future. With a glut of supply in the front end and the expiration of the October contract, the Feds less than glowing deflationary description of the economy was not enough to keep the oil bulls optimistic. When the Fed said that it prepared to provide additional accommodation (or printed money as I like to say) to support the economic recovery and fight off what they perceive as a deflationary threat, oil struggled to find its footing even as the financial and metal world responded. Gold dutifully rallied to all time high, oil prices continued to crumble and the reason was clear.

When the Fed tells us that household spending, while rising, is being constrained by high unemployment or that housing stats are at a distressed level, it is hard to get too excited about energy demand at a time of near record high supply. The question is not whether the Fed statement was bullish for oil because it was, but the question really is how far oil would have fallen if it were not for the Fed pointing to more quantitative easing. You see the price of oil can’t fall too hard because of its impact on overall inflation or deflation expectations and it can’t rally too high because we are in the weakest time of the year. With the October contract expiring into a near record.....Read the entire article.

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Phil Flynn: The Recession Is Over!

The recession is over! Now don’t you feel better? Well at least for a day the stock market sure did and oil and the products decided to go along for the ride as the market once again found a reason to believe. Still it appears that the joy that we are seeing in the market place is not all about the fact that the recession is over but a growing belief in the market place that the Federal Reserve is going to lay the ground work at todays FOMC meeting for another round of quantitative easing.

Oh sure, the expectations are not high that the Fed will do anything today but based on market action, if they do not drop any quantitative ease hints, the market will be a bit disappointed. Still the markets that seemed to be showing the most anticipation of Fed action such as gold and treasury bonds, seem to be a bit toppy after their recent spine tingling surge as they seem to be either getting ready to sell the fact after buying the rumor or perhaps they feel that the Fed may just disappoint them.

The oil market also has to look to the Fed as it is the Fed that is keeping the market from collapsing. While the petroleum market may see a big drop in supply this week due to transitory issues such as the Enbridge pipeline outage and the double trisect of tropical storms and hurricanes the truth is that we have more than ample supply. That is being reflected in an increasingly bearish outlook by crude option players. Oil may start to worry more about geo-political issues as we move forward.....Read the entire article.

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Phil Flynn: Brown Shoes Oil

Comedian George Gobel once asked, "Did you ever get the feeling that the world was a tuxedo and you were a pair of brown shoes?" Energy traders right now probably know exactly what he means. Are you not feeling a little left out of all the commodity excitement and feel like you are on the outside looking in? While oil prices fail at another attempt to take out $80 a barrel this week and stumbled back down into the mid seventies, it seems the rest of the commodity world has gone parabolic. I mean look at all the markets that have gone dong gone wild! Gold overnight hit another all time nominal high! Silver hit the highest level since the Hunt boys diversified from tomatoes or is it tomatoes to silver.

Sugar seems to be targeting doubling its price from the low it made last May. Corn is back above $5.00 a bushel as it appears that the crop and some of the ears are more than a few kernels short of the cob. Coffee has been percolating and is surging as Arabica supplies are tight and there are worries about the current crop. Yet petroleum these days have been very rangy. For oil it is hard to get over the hump when the demand outlook is sketchy and the supply is mounting. Oh sure, you can speculate that supply will tighten dramatically in the future.....Read the entire article.

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Phil Flynn: Just When You Thought Gas Prices Were Going To Go Down

Just when you thought gas prices were going to go down. A pipeline leak and strong economic data out of China and relief that the Basel banking regulations did not go too far is conspiring to set a positive tone in the oil markets. Chicago gets the shaft. While according to Trilby Lundberg the national average gas price fell 0.8 cents a gallon to $268.99, Chicago and the Midwest prices soared. Enbridge Energy Partners LP shut a major oil pipeline in Romeoville right outside of Chicago that ships crude from Canada to refineries in the Midwest.

The impact was felt across the markets as refiners may be forced to reduce runs. This can also increase the demand for higher yielding crudes as well to maximize output. Thanks goodness there is plenty of supply in storage or this could have really been worse. The market seemed to like the Basel rule or maybe they just like the finality of it all. Global blinking regulators agreed on a new set of rules designed to increase banks capital buffers to better be able to withstand large market movements but at the same time gave them more than a few years to get up to those levels.....Read the entire article.

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Phil Flynn: When Irish Bonds Are Crying

Remember the European financial crisis? Sure you do! You remember I know you do. It was when Greece looked like it hit the skids and it appeared they were headed for default!

And worries surrounded countries with the acronym PIIGS (Portugal, Italy, Ireland, Greece and Spain) were ready to go over the edge! The stock market was crashing and oil prices were plunging and it looked like we were getting ready for a major global market meltdown.

But then when all was nearly lost, the EU stepped up to the plate with a whopping 750 billion euro rescue package and instituted a series of European Bank stress tests to assure the world that gosh oh golly things were going to be ok and magically all of the problems seemed to go away.

The Euro came roaring back and the risk trade was back in vogue and oil was saved from a plunging deflationary bloodbath. I hope you remember that crisis because it may be back. We may be seeing that the European crisis is not over after all.....Read the entire article.

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