You lost that bullish feeling, lost the bullish feeling. You’ve lost that bullish feeling now it’s gone, gone, gone.
The petroleum complex lost that bullish feeling failing to build upon that cold weather inspired bullish promise. After starting the year like a bullish gangbuster the oil markets seem to be coming back to earth as the supply side just gets harder to ignore. Crude ended last week on a five-day losing streak as U.S. inventories increased and the International Energy Agency added to the building bearish momentum and the key area for oil to take out is the $77 a barrel range. Now the March contract has the bulk of the open interest and the market seems to fail to take out major support point during these roll over periods but the clock seems to be running out on the oil bulls.
Let’s face it, if you are very bullish what are your bullish arguments? The best one is China demand growth. Yet since China seemed to take steps to slow the economy by raising reserve requirements on their banks, that seemed to take some of the sting out of your best bullish argument. Yet overnight the Wall Street Journal reported that the Chinese Premier Wen Jiabao said that the [Chinese] government plans to maintain "reasonable and ample" money and credit supply in the first quarter, signaling it is unlikely to adopt drastic tightening measures before the domestic economy recovers further. Those comments seemed to give oil a bit of a bounce after testing the $77 a barrel range.
Mr. Wen also said Beijing aims to curb speculative property purchases as part of efforts to promote a healthy and stable development of the domestic property market. Wow, why didn’t Barney Frank think of that? He also said that China's government will take steps to ease energy supply bottlenecks in the first quarter and stabilize agricultural product price rises. Agricultural prices rises. Is that not inflation? Oops, I forgot to exclude food and energy.
The other bullish argument is that the recovering economy will reinvigorate demand. In some ways according to the International Monetary Fund the global economy is recovering in China and the developing world faster than expected but still raises caution. Bloomberg News reports that International Monetary Fund Managing Director Dominique Strauss-Kahn said it’s too early for policy makers to withdraw stimulus that’s driving the global recovery. The global economy is recovering, even if its recovery is fragile. A plan to withdraw emergency measures, “should be designed today” yet not “implemented” because world economies are still dependent on government support and private demand remains weak. Bloomberg said that Strauss-Kahn had said earlier this month that the world’s economic recovery is occurring “sooner and stronger” than anticipated. Government measures, “should be focused more on what is likely to fight unemployment.” He said that countries haven’t done enough to tighten regulation in the wake of the global financial crisis. “The root of the crisis” was “a failing of regulation and supervision of the financial sector in the U.S,” he said. “A lot has already been done, but it’s not enough.”
As it turned out the long awaited proposal from the CFTC on proposed position limits report from the CFTC was not as bad as some had feared. Instead of the CFTC putting in hard limits they tried to be inventive with position limits that are flexible based on open interest as opposed to a hard and fast number which eased some concerns. The rules should impact only a few players and in some cases the limits will be larger than the limits that the CME group now has in place. The CFTC says that if the proposed limits had been in place over the last two years only 23 traders would have reached the limits and only seven of these would have been forced to reduce their positions.
Still some on the commission are still rightly concerned that these proposals may do more harm than good. Commissioner Jill Sommers said she had several concerns especially the fact that the agency doesn't have authority from Congress to apply uniform position-limit rules to the over-the-counter market. She is concerned that forging ahead with federal limits in a piecemeal fashion is unwise. Others such as Commissioner Michael Dunn warned that the proposals could have unintended consequences perhaps damaging the markets leading to less transparency and driving trading overseas. The bottom line is that regulation of the energy markets are a good thing just like a referee is a good thing in a football game. Yet overregulation could harm the market place and ultimately harm energy consumers. These proposals need to be looked at more carefully before the CFTC overreacts to problem that really does not exist.
Don’t forget that due to the Martin Luther King day holiday the weekly petroleum status report from the Energy Information Agency will be released on Thursday, Jan. 21, 2010 at 10:00 A.M. (Central Time) due to the closure of the Federal government.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.