Markets moving on fear

Fear strikes out

Rumors and rumors of rumors finally took over common sense and fear was at a premium. The VIX soared to a four year high as "sell stocks and ask questions later" became the mood for the day. Rumors about a French credit downgrade and the health of some French banks created a selling frenzy. Forget that all those rumors were denied by all major reporting agencies, when traders are blinded by fear they might believe almost anything.

When people trade irrationally, there can be some marvelous opportunities for those that keep a calm head and a keen eye. The best way to combat fear is to have a plan that seeks to find moves that are overdone based on reality and to doggedly control your risk. If you have a solid plan that you stick to then fear goes away and you can take advantage of what the market brings you. Jimmy Piersall was crazy and he has papers to prove it and I may be crazy (not endorsed by any rating agency) but as bad as things are (and they are bad) they are not as nearly as bad as yesterday's market action would have you believe. Now I'll admit that some fear was totally justified especially last week but now for many stocks and some commodities, it is getting a little bit silly. I am not calling a stock market bottom necessarily, but at the same time a lot of stocks are ridiculously oversold due to fear and the loss of any rational thinking.

When you trade by fear you will make bad decisions. Fear strikes out and so will you. The best way to combat fear is to have a plan which includes taking your losses if necessary only so you will have the capital to take advantage of the values that those driven by fear will give you. If volatility is too much for you, stay on the sidelines because if you had a good plan you should be out and you can then wait for the sun to rise again.

The sun seemed to rise a bit on the demand side of the equation in the oil market. The EIA said U.S. crude oil refinery inputs averaged 15.6 million barrels per day during the week ending August 5, 135 thousand barrels per day above the previous week’s average. Refineries operated at 90.0 percent of their operable capacity last week. Gasoline production increased last week, averaging 9.5 million barrels per day. Distillate fuel production decreased last week, averaging 4.5 million barrels per day. U.S. crude oil imports averaged 9.1 million barrels per day last week, down by 34 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged just under 9.4 million barrels per day, 696,000 barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 633 thousand barrels per day. Distillate fuel imports averaged 99 thousand barrels per day last week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.2 million barrels from the previous week. At 349.8 million barrels, U.S. crude oil inventories are slightly above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.6 million barrels last week and are in the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.7 million barrels last week and are in the upper limit of the average range for this time of year.

Total commercial petroleum inventories decreased by 8.2 million barrels last week. Total products supplied over the last four-week period have averaged 19.3 million barrels per day, down by 0.6 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged 9.1 million barrels per day, down by 3.4 percent from the same period last year. Distillate fuel product supplied has averaged 3.7 million barrels per day over the last four weeks, up by 7.1 percent from the same period last year. Jet fuel product supplied is 2.5 percent higher over the last four weeks compared to the same four week period last year. The average world crude oil price on August 5, 2011 was $111.32 per barrel, $3.27 less than last week’s price but $32.64 above a year ago. WTI was $86.89 per barrel on August 5, 2011, $8.79 less than last week’s price but $6.22 above a year ago. The spot price for conventional gasoline in the New York Harbor was $2.787 per gallon, $0.233 less than last week’s price but $0.739 above last year. The spot price for ultra-low sulfur diesel fuel in the New York Harbor was $2.995 per gallon, $0.172 less than last week’s price but $0.786 above a year ago. The national average retail regular gasoline price decreased to $3.674 per gallon on August 8, 2011, $0.037 per gallon less than last week but $0.891 above a year ago.

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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