Believing the bull: Do you believe? Sometimes it is hard to find something to believe in. After a seesaw day in oil, with the market trying to decide whether the previous day's rally was something to believe in, at the end of the day, the market decided that perhaps it was not.
Perhaps the opening statement in the Department of Energy's "Energy Information Agency December Short Term Energy Outlook" best described the mood that permeated the market when they said, "the current global economic slowdown is now projected to be more severe and longer than in last month's Outlook leading to further reductions of global energy demand and additional declines in crude oil and other energy prices. Oh, wow. What a let down.
Well that is the lot of the energy market these days as it tries to adjust to all of these depressing economic realities. Demand is falling and falling faster than expected. US oil Demand according to the EIA will fall next year to the lowest level in 11 years. And globally the EIA says it not only fell this year but will fall again next year as well. That is the first back-to-back yearly demand drops in over 30 years. Let's face it: the commodity bull fun is over.
Now the Short Term Energy Outlook is not always a market mover but it's a sobering assessment added to the already negative market psychology. The EIA is normally very conservative with its market estimates and once again seems to be playing catch up with the market realities. Yet with all this negativity, the prices that the EIA are predicting are still higher than they are now. Does that make sense? Oh sure the EIA has lowered their average price of oil at $100 a barrel this year and next year they say the average will be $51 in 2009. Yet the 2008 number is already higher than the average price this year and will have to be lowered at the end of the year.
And yes, the lower crude prices forecast means that the gas price estimate will be lowered as well. The EIA is predicting that the average U.S. prices for regular grade gasoline will average $2.03 all of next year. Yet with prices of gasoline already at $170, that is assuming big jump. As for diesel fuel, they expect an average of $2.52 a gallon, 49 cents higher than gas. Showing that ultra Low sulfur diesel is much more expensive that the experts predicted.
And don't expect China to bail the market out. Dow Jones reports that China's exports fell for the first time in seven years last month. But it is not just exports, it is imports as well. Imports plunged because as Dow Jones says, China is experiencing weakness in both external and domestic demand that worsened severely in just the last few weeks. November exports dropped 2.2% from last year and marks the first decline in the dollar value of exports since June 2001. Dow says the export performance was far worse than economists had forecast, although Chinese officials had indicated Tuesday that a decline could be in the offing.
Oil today will focus on the stocks and inventories. Right now oil is in a range. If oil gets above $45 and closes above it then $50 is the target. If we break $40, we will get more than likely get to $35. The market is looking for a reason to make that next $5.00 move. Will today be the day that the market makes up its mind?
To find out tune into the Fox Business Network all day where you can see me everyday! While you are at it call me to open your account! A great time to put on options and day trades! My number is 800-935-6487 or you can email me at firstname.lastname@example.org to open your account.
We're short January crude from approximately 5760 on a double rollover! Lower your stop to 5200!
We're long January heating oil from approximately 14300 - raise stop 14400!
Stopped on long January RBOB from approximately 9000 at approximately 8900.
Buy January natural gas at 510 - stop 470.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or email@example.com.