Oil looking for excuse to go higher

Yesterday the very volatile month of May entered the history books. As shown in the following EMI Investment Leader Board (table below) most all of the major commodity and financial risk assets are still in positive territory for the year to date with almost half of the year in the history books. The main price leading asset class after five months was the oil complex with spot RBOB gasoline still the number one asset investment for the year to date with an almost 32% gain reflecting a narrowing of the supply overhang than existed throughout most of last year. Crude oil was a close second with Brent taking the lead with a gain of 25.4% or $23.64/bbl. Brent has appreciated about $11/bbl over WTI during the first five months of 2011 as the crude oil inventories in PADD 2 and Cushing, Okla. remain at above normal levels. Obviously the main reason for the oil complex surging into the top spot for an asset class on the EMI Leader Board has been the evolving situation in North Africa and the greater Middle East as well as slowly improving fundamentals... although both of these could be on the cusp of changing a bit.

Even Nat Gas performed well with a year to date gain of about 7.56% or $0.328/mmbtu basis the spot Nymex Nat Gas contract. All in all it has been a positive for Nat Gas so far this year with winter weather this year colder than last year helping to offset or absorb the robust supply situation in this sector of the energy industry. Also with rig counts dedicated to Nat Gas in decline we could see supply starting to ebb a bit in the coming months. Looking at the Nat Gas situation from a macro perspective I would say that the worst of the overhang and downward pressure on prices could finally be over.

In the metals area Silver was the clear cut winner for the first five months of the year even after the huge downside correction in May with a gain of 26.02% as Gold lagged strongly behind gaining just 9.27% for the year to date so far. On the industrial side of the equation copper actually declined over the first five months by 4.4% principally as a result of the Chinese governments' aggressive approach to fighting inflation by intentionally attempting to slow their surging economy. With the latest PMI number released overnight (see above discussion) copper may be getting ready for further declines as the Chinese government reported a further slowing in their manufacturing sector.

Agricultural commodities were mixed so far this year with corn the leader in this asset class showing a gain of 21.35%. The combination of gasoline based consumption of corn (corn based ethanol) and growing demand on the food side for corn as well as the rest of the agricultural space is likely to remain firm for the foreseeable future. How much stronger prices get will be dependent on the size of the upcoming crop as well as how the weather evolves during the growing season. The weather has been a problem especially in the major planting regions of the US with the huger floods from the Mississippi river. On the negative side for the grain market, Russia just yesterday announced they will be removing their export restrictions on agriculture products beginning in July.

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