Energy report: Crude bull runs out of gas

Oil is having a hard time following through on its bullish momentum, which is particularly disappointing to the bulls especially after China's red hot GDP numbers. Strong growth numbers out of China seemed to not inspire the type of buying frenzy that one might imagine. Mixed data out of the US and the fact that oil should be getting close to a seasonal peak perhaps is weighing down the marketplace. China did take some steps t o try to slow their economy down from overheating by attacking surging real estate prices and that may be another reason why China's surging prosperity didn't trickle down to the oil market. The Financial Times reported that the Chinese State Council said that anyone buying a second home in China would need to put up a 50% deposit up front. That is up from 40% previously. First time homebuyers in China buying homes s bigger than 90 square meters have to put up 30%. The Financial Times says that China instead of raising rates like Australia and India, China has targeted a 22% reduction in new loans from a record $1,400 bn last year and twice asked lenders to set aside more cash as reserves. The last time China's growth accelerated to more than 11%, in the first quarter of 2006, the central bank raised rates within a month. Still the Times said that China's cabinet signaled caution in ending crisis policies, saying first-quarter economic growth was largely driven by stimulus policies and a comparison with low levels in 2009. I think the bulls would like to end the week with the front month closing over $85 to confirm their bullish aspirations which is getting harder to do as we are seeing a lot of rolls continuing from the May into the June and other contract. June has more open interest now yet with record volume and a lot of rocking and rolling to do we could see the contango continue to widen.


The other factor holding oil back is the dollar. The dollar seems to be gaining strength on the ongoing on again off again Greek worries. Oh no. It's not resolved yet? The Financial Times reported that "Greece capitulated to market pressure yesterday and took an important step towards a bailout from its Eurozone partners and the International Monetary Fund as it formally sought "consultations" over a ???30bn-plus loan package to stave off default." With uncertainty surrounding the latest bailout once again going into the weekend traders may seek the safe haven of the dollar so they can sit back and enjoy their recent stock market profits.


Yes that soaring stock market has also provided support. Yet the run while impressive may face some profit taking especially after Google missed the whisper number


Natural Gas's little foray above $4 ended in an ignominious fashion. The EIA reported that working gas in storage was 1,756 Bcf according to EIA estimates. This represents a net increase of 87 Bcf from the previous week and a whopping 16.3% above the five year average. So much for that preseason hurricane premium. Of course ample supplies o cheap natural gas is the unsung hero and a part of the incredible manufacturing come back. Think of the natural gas price as an economic stimulus package that the taxpayer does not have to pay for.


We still feel the best way to trade energies and other commodities at this point is to trade the ranges.

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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