What will a new week bring? If the pattern persists new historical records, a week of gains and the market continuing to discount anything bearish. With five more days of trading in front of us time will tell this week’s outcome. Interestingly the energy market is starting the week on a slightly negative note while the dollar is starting out slightly positive.
The weekend was relatively quiet (insofar as oil drivers are concerned) with little new reasons for supporting the current over-valued oil price environment. High prices are going to begin to impact demand all over the world. The only sector that is immune to the negative aspects of the current high price environment are the producers, especially OPEC nations whose revenue stream is expected to be over $1 trillion dollars in 2008. Many emerging nations are not going to weather the high prices for energy and food for an extended period of time. We are also beginning to see an impact on demand in developed countries like the U.S. so it is logical that many poorer nations will begin to reduce consumption during this unprecedented oil price spike. A spike that for the first time ever has not been caused by a real shortage of oil…just the perception of a shortage at some point in time in the future.
Yes we remain in an energy/commodity bubble. A bubble that I still believe is closer to bursting that expanding. Although the dollar posted slight losses for last week we still believe the dollar is closer to bottoming out and moving to higher ground than it is to another major downturn. As such we still also believe that a firming dollar will prove to be the major catalyst for bursting the energy/commodity bubble. As I said in the first part of this report…time will tell.
We do expect prices to remain very volatile and likely make new historical highs at some point during the week. We also see the risk of the downside correction starting to increase a bit this week, especially if the inventories are once again bearish. Until proven otherwise buying strong dips with tight stops is still the trading strategy of choice while using options/options spreads (short time horizon) is still the choice for those hedging upside price risk.
Currently oil prices are lower while the dollar is slightly firmer.
Current Expected Trading Range
5/12/08
Change
Upper
Lower
From
Resistance
Support
7:43 AM
Yesterday
June WTI
$125.30
($0.66)
$130.00
$99.20
June HO
$3.6199
($0.0161)
$3.4000
$2.7100
June RBOB
$3.1871
($0.0141)
$3.1500
$2.5200
June NG
$11.610
$0.073
$11.500
$8.700
Euro/$
1.5421
(0.0031)
1.6000
1.5200
Yen/$
0.9631
(0.0102)
1.0450
0.9900
Dominick A. Chirichella
Energy Management Institute
dchirichella@mailaec.com
www.energyinstitution.org
www.advancedenergycommerce.com
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