The Energy Report

6/29/2009

China is providing the fireworks!

When you think of Independence Day you think of fireworks. And we all know fireworks were invented by the Chinese. So leave it to the Chinese to provide a little fireworks to awaken a flat lining oil market.

Oil was a flat line as the market got pulled in different directions on a confusing mix of market fundamentals. Once again the Chinese are calling for a global currency so they can loosen their dependence on the dollar and talk of more big purchases of oil yet at the same time we have Bank of China Governor Zhou Xiaochuan playing down dollar worries by saying that China’s foreign exchange reserve policy is stable. That kind of talk may give the dollar a boost but the other key question for the oil market is whether or not the Chinese are going to continue their recent strong buying in oil.

Well the answer to that question is probably yes. Over the weekend it was reported that China plans to increase strategic crude oil reserves by 60 percent to 270 million barrels during the next five years by the Nikkei English News citing an unidentified official from China’s National Energy Administration. According to the report China will spend 30 billion yuan ($4.39 billion) for stockpiling facilities with a capacity to hold 169 million barrels. China Petrochemical Corp., China National Petroleum Corp. and other companies will construct and use the storage sites. If China continues to strengthen its reserve then oil will be bought on pullbacks. This should help provide some long term support.

Yet demand worries still fester. The International Energy Agency made a 3.7% downward revision to their “medium term” forecast for global oil demand. The IEA says that global oil demand will average 87.90 million barrel of oil a by 2013 and according to Dow Jones is a big downward revision of 3.3 million barrels a day compared with its previous forecast in December and a reduction of 6.24 million barrels a day, or almost 7%, versus the IEA’s original forecast last July. The report also underlines how reduced investment and other “above-ground” factors like resource nationalism in past months are hurting the supply-side equation. That could yet mean much higher crude prices down the road should economic growth return to rates seen north of 3% globally prior to the downturn.

On the bullish side it was reported that there was another attack on oil interests in Nigeria.  The Movement for the Emancipation of the Niger Delta said it, “has struck at the Shell Forcados off-shore platform in Delta state,” in the western Delta early Monday. Cluster 11 and 30 are currently on fire after a massive explosion. Dow Jones reported that a Shell spokesman said they are aware of reports of an incident. This comes after MEND rejected a presidential amnesty offer to militants unveiled the previous day. He argued it didn’t address a demand to modify oil revenue redistribution at the federal level.

We feel that right now oil should be bought on breaks call me for the latest at 800-935-6487 or email me at pflynn@alaron.com to open your account and see me today and every day on the Fox Business Network.

Buy August crude 6550 – stop 6260.

Buy August heating oil at 16500 – stop 16300.

Buy August RBOB at 17300 – stop 16900.

Buy August natural gas at 384 stop 377.

Phil Flynn

Alaron Research Team
800.935.6487
pflynn@alaron.com

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