The Energy Report

6/30/2009

Oil’s got to accentuate the positive

Oil’s got to accentuate the positive, eliminate the negative, latch on to the affirmative. Don’t mess with Mister In-Between. So much for a quiet holiday week and expiration of oil products. Instead of fading quietly into the night and meekly caving in to weak demand expectations, the petroleum complex decided to focus on a rising stock market, China and the increasing geo-political issues with Nigeria and the military coup in Honduras.

Why are all of these issues important? You cannot underestimate the bullish impact of signs that China’s oil demand is strong and will continue to be so. The news that China was planning to increase strategic crude oil reserves by 160 percent to 270 million barrels during the next five years was a major bullish story. That comes after reports last week that China oil demand in May hit the second highest level ever. China has raised domestic fuel prices as much as 11 percent to help inspire refiners to produce more fuels amid higher crude costs. The government doing so is another sign that demand in China domestically is stronger than many think. If China is committing to spending 4.39 billion for increasing the size of their strategic petroleum reserve, then reports of China’s weakening oil demand has been greatly exaggerated.

The ongoing attacks in Nigeria have reduced oil output from the country by at least 900,000 barrels per day and probably closer to a million barrels a day. Nigeria rebel group MEND (Movement for the Emancipation of the Niger Delta) has dismissed the Nigerian government offer of amnesty and have continued attacks. The oil market has done its best to ignore the attacks but the ongoing nature and the target of the attacks make it harder each day.

The situation in Honduras is a concern not because Honduras is an oil producer but fears that Venezuela might get involved. A long shot but yet another reason not to be short.

A rising stock market also gives hopes to rising demand and inflationary fears. The Fed is on hold so the buyers of oil continue to flock to oil as a hedge against inflation and a weaker dollar.

Thanks for all the call and emails! You’ve all been great! Feel free to call for day trades and option plays and to open your account. Position wise oil should be bought on breaks!

Call me 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 at 6700 – stop 6560.

Buy August heating oil at 16800 – stop 16300.

Buy August RBOB at 17800 – stop 16900.

Buy August natural gas at 384 stop 377.

You’ve got to accentuate the positive

Eliminate the negative

Latch on to the affirmative

Phil Flynn

Alaron Research Team
800.935.6487
pflynn@alaron.com

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