Feed the birds because a bird in hand is worth two in the bush. Friday's freakish March contract oil rally had more to do with today's option expiration and profit taking than any major change in the dismal fundamental outlook for oil.
Demand continues to trend downward even despite March's last gasp of a rally. Oil that was trading in the $33 handle came surging higher as the rest of the crude curve stayed flat to lower. Traders that were selling March and buying the rest of the curve decided it was better to take profits ahead of the three-day weekend and ahead of the options expiration. You know the old bird in the hand theory.
Yet there are still many birds in the bush. Oil supplies are still surging and the demand outlook is worsening. Asian stock markets looked lousy over the weekend, as did Europe. More reports of slowing global oil demand from OPEC and private forecasters that oil demand could fall as much as an additional 2 million barrels a day in the second quarter. That means OPEC will have to try to reduce production by at least 2 million more barrels a day to keep current and even that might not stop oil supplies from rising.
Now in the past, low oil prices might have been a problem for Hugo Chavez, President of Venezuela, but not anymore. Hugo won big and now can run for reelection anytime he wants. His win also won him the referendum to change the constitution so he can run for president as many times as he wants. But do not worry he says he may only want to lead Venezuela 20 or 30 more years.
Dow Jones News, quoting London's Daily Telegraph, reports that Israel has launched a covert war against Iran as an alternative to direct military strikes against Tehran's nuclear program. The Telegraph, citing U.S. intelligence sources, says Israel is using hit men, sabotage, front companies and double agents to disrupt the regime's illicit weapons project.
We have been short crude for four straight rollovers. If oil stay below 4750 we will make it five! We're short March crude and loving it from approximately 4354 on a quadruple rollover! If not stopped out, roll to April market on close!
We're short March heating oil from approximately 14000 - lower stop to 14500.
Sell March RBOB at approximately 13300 - stop 13900.
Sell March natural gas at 500 - stop 540.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com.
