Risk on/risk off hokey pokey

You put the risk trade on and you take the risk trade off. You put the risk trade on and you shake it all about.

It is back to the risk trade hokey pokey. Now let me get this straight, is it the risk trade going on or is it the anti risk trade coming off? This week the economic data in the United States and China, a downgrade of Japan by Fitch and the continuing saga in Europe, and as far as debt goes it continues to suggest that demand for oil will not be as nearly as robust as previously anticipated. Not to mention of course the impeding farewell to QE 2, the commodity bulls best friend. Still despite the suggestion of doom and gloom the risk trade is trying to get back on.

Perhaps geopolitical risk is one factor. The Libyan stalemate continues to take away high quality Libyan crude off of the market. Yet as we know the geopolitical risk goes beyond Libya and is becoming a bit more complex. Take for example a must read story in today's Wall Street Journal. The Journal writes, “Saudi Arabia is rallying Muslim nations across the Middle East and Asia to join an informal Arab alliance against Iran, in a move some U.S. officials worry could draw other troubled nations into the sectarian tensions gripping the Arab world. Saudi officials have approached Pakistan, Malaysia, Indonesia and Central Asian states to lend diplomatic support—and potentially military assistance in some cases—to help stifle a majority Shiite revolt in Sunni-led Bahrain, a conflict that has become a symbol of Arab defiance against Iran. Saudi Arabia's efforts, though against a common enemy, signal increasing friction with the Obama administration. Its invitation to Pakistan in particular could complicate U.S. security goals in South Asia. The push also complicates U.S. efforts to guide popular uprisings in the Middle East toward a peaceful and democratic conclusion.” Buy a Journal today for this worthwhile reading!

We also have the G-8 and they too are making a statement on the historic change in North Africa and the Middle East! Dow Jones reports that, “Group of Eight leading nations launched a partnership with “Arab Spring" countries in transition Friday, directing multilateral development banks to take the lead in coordinating the provision of aid of over $20 billion for Egypt and Tunisia. In their final communiqué released after a two-day meeting in this seaside Normandy town, G-8leaders expressed confidence in the global economic economy though they said the "sharp increase" in, and "excessive volatility" of, commodity prices was a threat, despite market developments in April that appear to have signaled a halt in the global rally in prices for of energy and basic agricultural products. The G-8, which includes the three largest members of the Eurozone, said Europe would continue to tackle its debt crisis "with determination" and pursue "rigorous consolidation" and structural reforms to bring its public finances under control. Perhaps the end of QE 2 and a realization by some global central banker that they were a factor in rising oil prices and commodity prices seems to be another factor in the commodity retreat.

Natural gas caught the marketplace by surprise! I don’t think any analyst saw the first triple digit injection of the season! Not only was it a triple digit by a whopping 105! The EIA says that working gas in storage was 2,024 Bcf as of Friday, May 20, 2011, according to EIA estimates. Still stocks were 230 Bcf less than last year at this time and 26 Bcf below the 5-year average of 2,050 Bcf. In the East Region, stocks were 110 Bcf below the 5-year average following net injections of 56 Bcf. Stocks in the Producing Region were 133 Bcf above the 5-year average of 769 Bcf after a net injection of 38 Bcf. Stocks in the est Region were 49 Bcf below the 5-year average after a net addition of 11 Bcf. At 2,024 Bcf, total working gas is within the 5-year historical range. Now remind me why we are not making natural gas a national energy priority?

While you are enjoying this weekend remember to stop and say a prayer for those that gave all so we can live in freedom and security. God Bless all of them and God Bless the men and women that serve today.

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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