A rally built on printed dollars. Oil prices rose for the first time in seven days and natural gas fell as the market tried to price in the latest realities. Petroleum soared on OPEC threats and auto bailout hopes, not to mention a small promise from President elect Barrack Obama to start the biggest U.S. public works program in half a century. The President elect proposes to print dollars for building roads and bridges and other things across that nation. Of course, one might wonder if you build a bridge on printed money how solid that foundation might be. The stimulus talk sank the dollar and began a broad based commodity rally just about everywhere except in the natural gas market.
Why not natural gas? You might ask. The natural gas is one where the weak dollar and OPEC have less impact on its movement. The natural gas is a market that is less impressed with flashy promises of future bailouts and the prospects of more printed money. This is a market focused on some of the current cold, hard economic realities. A market that has already seen industrial use of its product fall by 14% or 15% and now, based on recent news should fall more.
Yesterday, the gas was pressured not just by some warmer weather forecasts but by the fact that the impact of industrial demand destruction on gas has just begun. Take for example news out of Dow Chemical and 3M. Dow Chemical, "in light of current economic realities," announced that it will close 20 facilities permanently and 180 plants temporally. They also announced that they would cut 5,000 jobs or about 11 percent of its work force and cut its production by 30%. Last week, competitor DuPont, announced cutbacks as well. And with all the talk about band-aid and Scotch tape to hold the economy together, you might think 3m would be doing a little better. 3M, which makes Scotch tape and post it notes.
The truth is that the natural gas move yesterday better reflects the economic reality then the wildly optimistic move in the petroleum. Despite the hopes for the future, the here and now is bad and for energy demand and it is going to get worse before it gets better. Still the worry is that if demand continues to be weak, then we could see producers start to cap some wells. That is when gas will be getting ready to turn around.
A one-day rally in petroleum is not enough to declare a bottom. The market has much to prove. Oil needs a close above $45 dollar a barrel to negate the bearish setup. If it does not, the downtrend will resume with a vengeance with the next major target is $35 a barrel.
A happy and sad day for me! Well, sad for me and happy for my buddy. Today will be my last day on the air with WGN Radio Legend Spike Odell. Spike has decided to retire. There is no truth to the rumor that Spike's leaving WGN radio (World's Greatest Newspaper) caused the Tribune Company to go bankrupt. But then again it probably did not help. Spike has been a fixture on Chicago radio since the 1980s where his "Radio Experiment on the 50,000 watt love pump" informed and entertained millions of Chicagoans. Not only was he the top rated morning personality in Chicago year in and year out, but more than that, the truth is, he's one classy guy. Oh sure, he is great at his job but what made Spike special is that he really cared about people. Spike always went out of his way to make another person feel good and always was the first guy to help a charity and do good work. Spike raised lots of money with his "Bite your Butt Mustard" and helped make Chicago a much better place to live. I was honored to be Spikes "gas guy" and get to know him and work with him. And yes to his many fans, Spike really is that great in person. I wish him the best of times in his retirement. "Happy Traffic" will, I guess, not be so happy anymore. Of course then again, he will have no more excuses for his golf game! Let me know how that sleep thing is working out for you, Spike! My best to you!
We're short January crude from approximately 5760 on a double rollover! Lower your stop to 5100!
We're long January heating oil from approximately 14300 - stop 14400!
Buy January RBOB from approximately 9000 - stop 8900.
Buy January natural gas at 510 - stop 470.
