The Energy Report for Friday, February 24, 2006 Sometimes you’ve got to sit back and just enjoy the wonders of nature. And what nature does sometimes can be astounding. Take for example the life of a salmon. Other than those that end up on my dinner plate, the whole purpose for the life of a salmon is to swim upstream - not an easy task where much peril is encountered like big bear claws! - where they then lay their eggs or fertilize them only to go fin up as the next generation moves in line. So trying to buy oil against a backdrop of a continued rising supply of crude and gasoline might seem to be a bit fishy but sometimes the markets can be just as amazing as nature and act in astonishing ways. And just like the amazing story of the salmon, sometimes a market can swim what seems to be an impossible journey up stream dodging those dangerous bear claws all the way.
The Department of Energy dutifully reported the weekly supply numbers yesterday. Gasoline inventories sit at the highest level since June 4th of 1999. Crude oil inventories are well above average for this time of year. Words that tell a story of a potential supply glut and a river of oil supply. Yet the nature of this complex is not to take things at face value. Demand for gasoline is still substantially higher than it was in 1999 and has the potential to set a record this year. Long term trendlines are still intact for the crude oil market. In fact this trend line area has been a better buy area than sell. In fact the way oil bounced back from below $60.00, it might suggest we may have put in a bottom for now.
Why the bounce with the seemingly endless supply? This market is proving to be more than just about short term supply. There is a whole host of other issues to consider. Seasonally we know that oil seems to be strong. We generally will rally with the anticipation of the summer drive season. And we know OPEC’s nature is to fear and react to any perceived supply glut that would lead to a drop in price.
The nature of the market has also been to weaken as we head towards expiration only to rally after the fact. And the nature to fear the unknown has also raised the risk of being short for an extended period of time with weekends being especially troublesome for the bears. Increased geo-political turmoil has put the so called ample supplies situation on the back burner. Whether it's Iran, Nigeria, Venezuela or you name it, there seems to be a chance that any of these hotspots could dramatically alter the supply side universe. So as long as the long-term trend line stays in take I am going to make like a salmon and buy the breaks.
No fish story here! Sign up for your free trial of Alaron Energies today. Go ahead take the bait! Or at the very least email me at pflynn@alron.com or call me at 800-935-6487 to open your account. I will try to answer all the emails you're sending. Thanks for the great response. Keep them coming! See me on Bloomberg TV today at 2pm central for the bond market wrap up.
Buy April crude oil at 6000 - stop 5970. Buy April heating oil at 16600 - stop 16500. Sell April unleaded at 16400 - stop 16500. Buy April natural gas at 720 - stop 710.
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