Oil get rocked then rolled over as oil makes a late day comeback after the last weekly EIA inventory report before December expiration. For Energy Report readers it will be a double rollover as we have been short crude from the November contract all though the December contract and will rollover to January today assuming the market doesn’t stop us out today. Yet it was not just the oil that got rocked and rollover it was the stock market as well. We started the action with a bearish inventory report the confirmed once again the doom and gloom that we have all been feeling in the pits of our stomachs. Take for example the recessionary like demand figures. The EIA reported for all products supplied over the last four-week period has averaged only 19.1 million barrels per day. That was down 6.6 percent from last year. They also report that gas demand averaged only 9.1 million barrels per day which is down by 1.9 percen t from the same period last year. Still that percentage year over year is improving and even though demand is bad it is not as bad as it has been when compared to last year. Of course that is still trying to put lipstick on a pig with no offense meant towards Governor Sarah Plain.
Distillate fuel demand is not any better averaging about 4.0 million barrels per day over the last four weeks and down by 4.6 percent from the same period last year. The planes are still grounded as Jet fuel demand is 18.8 percent lower over the last four weeks compared to the same four-week period last year.
And if that was not enough the bad economic news early also was in play. Reports that China’s industrial demand growth dropped to a seven year low and from the International Energy Agency that Chinese domestic gasoline demand growth will to slow to 4.5% from this year to 1.519 million barrels a day in 2009. Then reports that Germany officially has gone recession on us and the stocks were bleak and we had all lost hope.
Yet late in a wild session stocks turned wildly positive and started to rock and roll after President George W. Bush gave a speech defending capitalism and the free markets. It seemed that that was what the market was longing to hear as it wasn’t quite the same as the former maestro Alan Greenspan question the bedrock belief that free markets actually work. President Bush obviously is not a great speaker but this one was worth billions in shareholder value. President Bush rightly says that this crisis is not a free market problem. Sometimes we know that the greatest thing we have to fear is fear itself and a little reminder how capitalism and the free markets have created the greatest prosperity and standards of living that the world has ever known was just what a market weary trader needed to hear. Sometimes we need to be reminded of that in turbulent times.
That is especially true with pour friends in Europe that what to establish a worldwide economic world order and try to roll back the principles of the free markets that have been the bedrock of any economic success they have had. I am glad President Bush is reminding them it is always a good idea to stay with the girl who brought you to the dance. Especially if she rocks and rolls like our economies have for one of the longest times in recorded history.
Of course will that save us today? The EU is now in its first recession since the beginning of the EU as a currency. The Organization for Economic Co-operation and Development reported it sees the U.S. economy shrinking by 0.9 per cent next year and warns that OECD countries could "enter a protracted slowdown." They are saying that economic activity in countries that use the euro and in Japan will fall in 2009 by 0.5 per cent and 0.1 per cent. Italy is rocked with recession. Hong Kong rocked with recession. Heck there is recession all over the place. The G20will meet and I hope they take President Bush’s message to heart and the prosperity the world has enjoyed will return.
Who are the smartest oil traders in the world? Well maybe it is Mexico. Mexico which locked in the oil prices selling their production at the highs in long term contracts is now selling some more! Their last trade has to be worth many millions and now one must wonder if they know something else by locking these prices now. Of course they will need the money because they may be great traders but they are not so good at investing that money back into their oil industry or getting help from the oil majors to help stop their decline in production. Just this week the IEA warned that Mexico's liquid hydrocarbons could fall 25% by 2015. The IEA says that restrictions on private investment are hindering Mexico’s production growth. Of course maybe they won’t need to hedge oil and they could just speculate on oil as it seems they have a hot hand.
Yes we were buying heating oil on seasonal concerns. The market is ready for a tech bounce but how sustainable it is will depend on how bad the stock market is. As of now heat has a good value based on supply and demand and is vulnerable foe a weather related spike. The same goes for natural gas. Still we have to be cautious as the world economies are still trying to adjust so too wills the price expectations for petroleum. We may get a pre G20 bounce as the market may want to be optimistic that the great minds of the world will find a way out of this fine mess but if all they have is more rules and regulation better hang onto your hats because then we are going down. CLZ crude tested $60 overnight key on the upside. A close below 5610 opens us up for a test of 450.
How low can it go? Well Bloomberg’s Margot Habiby reported that the $30 put contract went for 45 cents up 25 cents from the day before. The contract was the most active after December $55 puts, which dropped as futures prices rallied. If traders are active in the $30 put area it seems that pessimism is rampant.
Yet is $30 a barrel possible? Well if $50 does not hold the charts say it is. Failing to hold $50 will make $30 seem like a reasonable target! Still we have to close below $5610 first. Great day trade and portion plays are available.
Do it on the close and put in a $500 stop for the weekend!
Bought December Heat Oil apprx 18000 raise stop 18100!!!
Sell Dec RBOB at 13600 stop 14400 Buy Dec natural gas at 515 stop 500
