Energy report: Crude falls despite Bernanke news

A Friend in Ben.

Ben, behind your back you look no more, you found votes that you were looking for. Instead of rent I now will own, I’ll never pay the loan, and you my friend will see, my interest will be free. You’ve got a friend in me.

Ben, you may have cut a deal here and there but you felt not wanted anywhere. If you ever look behind and don't like what you find there’s one thing you should know you can always print some dough (you've got a place to go).

The banks used to say "I" and "me". Now it's "us", now it's "we". They used to say loan and fee then went bust, now it's freeze. Ben, some wanted you to go away, I don't listen to a word they say. They don't see you as I do, I wish they would try to. I'm sure they'd think again if they had a friend like Ben (a friend) Like Ben (like Ben) Like Ben.

Well Fed Chairman Ben Bernanke is back and commodity bulls must be jumping for joy. Big Bad Ben or Mr. Bubble as some would like to paint him, is the architect of the commodity bull market or bubble depending on your point of view. The oil bull market has been, of course, courtesy of your Federal Reserve under Mr. Bernanke and you would think that the oil bulls might have been a bit more excited. Yet it seemed that the promise of that Bernanke magic wasn’t enough to inspire an uninspired energy complex.

Oil seemed to hold up better than say the beleaguered stock market but Ben and his alleged back office deal to keep the printing presses running and fears of rising political control over the so called independent Fed was not enough to shake off the bearish mood in oil. Oil waffled up and down and could not seem to muster a rally and failed to take out what is the $72 resistance. If $72 is breeched to the downside, it should take oil for a quick ride down to the $65 a barrel handle. Still oil seems to be reluctant to move too fast with Ben still in charge of the printing presses.

And why should we not be bearish? Reuters News reports the International Energy Agency is saying that oil use in rich industrialized countries will never return to 2006 and 2007 levels because of more fuel efficiency and the use of alternatives, the chief economist of the International Energy Agency said on Thursday. This bold prediction, while made previously by some analysts, is significant because the IEA advises 28 countries on energy policy and its oil-demand forecasts are closely watched by traders and policymakers. Faith Birol of the IEA said that when we look at the OECD countries - the U.S., Europe and Japan - I think the level of demand that we have seen in 2006 and 2007, we will never see again there may be some zigzags up and down but as a trend I think it will be a downward trend in terms of oil consumption."

Reuters says that flat or declining OECD demand may ease any strain on oil prices caused by ever-growing consumption in emerging economies. The Organization for Economic Co-operation and Development (OECD) countries will account for 53% of world demand in 2010, the IEA says. In its Jan. 15 monthly Oil Market Report, the IEA forecast OECD demand would average 45.48 million barrels per day (bpd) in 2010, unchanged from 2009. World demand is forecast at 86.33 million bpd, up from 84.89 million in 2009.Mr. Birol said the economic crisis had played a role in curbing OECD demand but the main reasons were more efficient cars and the increasing use of electricity and gas instead of oil in areas outside transport. "It did play a role. The recession had a one-off effect," said Mr. Birol, who spoke from the sidelines of the Davos conference of business leaders. "But the main factors are structural." BP PLC chief executive Tony Hayward, also in Davos, said on Thursday demand for gasoline would not return to the rate of three years ago in established markets. "None of us will sell more gasoline than we sold in 2007," he said, referring to developed markets. "That's, however, being offset by very strong ... markets of the East and particularly China."

In China 13 million cars were sold last year, he said. Interest in peak demand has grown following the surge in oil prices to a record high near U.S. $150 a barrel in 2008, a decline in world demand because of the economic crisis and efforts to combat climate change. Reuters reported a year ago, citing analysts including the former chief economist at BP, that oil demand may never return to growth in the United States, Europe and parts of Asia. While non-OECD demand is expected to keep world oil use on a growing trend, some observers contend global consumption could reach a high point in the next decades as a result of policies to tackle climate change.

Peak demand, nuclear power and drill time! Is President Obama serious about expanding oil and gas drilling here in the United States? Is he serious about opening the door to nuclear power? The most practical answers to our energy problems are at least getting some consideration and will meet with Republicans to discuss this but if Obama forces a climate bill to come with it, we still may be dead on arrival. Still if he gives up on pushing cap and trade and moves towards nuclear power and natural gas drilling, it may be the most significant step towards reducing green house gas emissions from the United States ever.

Something to watch: Dow Jones reports that The U.S. Senate late Thursday passed a new sanctions law against Iran and the companies that do business with the country in a bid to ratchet up pressure on Tehran to halt its nuclear enrichment program. Although it covers a broader swath of the economy than just the energy sector, the bill particularly aims to cut Iran's gasoline imports by penalizing the firms that supply the country with up to 40% of its refined petroleum needs.

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 pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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