With commodities still the best game in town for the spec & investor crowd the oil complex surged once again on Wednesday and into this morning’s trading. With a weak dollar the market sentiment is becoming more bullish each day. Yesterday’s oil inventory report provided a mixed picture but one that was not nearly as bullish as the market made it out to be.
· Crude oil & gasoline declined. Crude oil stocks still remain within the normal operating range as measured by the 5 year average. Gasoline on the other hand is still almost 19 million barrels above last year and almost 14 million barrels above the normal operating range as measured by the 5 year average.
· Distillate stocks built against an expectation of a 2 million barrel decline. The total level remains within the normal operating range as measured by the 5 year average and with warm weather upon us this week’s build may be the start of the normal building pattern that will likely be with us until well into November.
Overall I rate yesterday’s report at neutral at best but as I discussed in yesterday’s report the market sentiment is so bullish that it once again quickly discounted the bearish aspects of the report and focused on the bullish aspects only.
On another note China's gross domestic product expanded 10.6% for the first quarter of 2008, down from a newly revised growth rate of 11.9% for all of 2007. Inflation has become the government's top economic priority. Although China’s growth still remains in double digits (for the moment) the fact that is may be turning lower may be an early warning signal that over the course of 2008 China’s performance may not match their record for the last several years. If it does not we could possible also see a downturn in their energy consumption. Still very early in the cycle and too early to tell if the US economic downturn will impact China’s growth since the US market is their biggest customer.
So yes the market is still all about the US dollar and the fact that commodities and in particular energy instruments remain the best investment vehicles for the moment. As shown in the following table The energy complex has appreciated in value between 18 and almost 40% (depending on which instrument viewed) so far this year while the Dow still remains in negative territory. Oil has also overtaken Gold as the commodity of choice during periods of weak dollar and turmoil (Gold up 12.9% so far this year versus 19.7% for WTI). Also as shown in the table the US dollar has lost over 9% so far this year versus the Euro & the Yen. This pattern is true versus most of the other main foreign currencies.
| | | | | |
| 2008 Performance to Date | | | ||
| | | | | |
| | 4/17/08 | 29-Dec | Change | % Change |
| | 2008 | 2007 | For YTD | YTD |
| | | | | |
| Spot WTI | $114.85 | $95.98 | $18.87 | 19.66% |
| Spot HO | $3.2909 | $2.6494 | $0.6415 | 24.21% |
| Spot RBOB | $2.9613 | $2.4908 | $0.4705 | 18.89% |
| Spot NG | $10.430 | $7.483 | $2.947 | 39.38% |
| | | | | |
| Dow Industrials | 12619.27 | 13264.32 | (645.05) | -4.86% |
| Gold | 944.5 | 836.8 | $107.70 | 12.87% |
| | | | | |
| Euro/USD | 1.5913 | 1.459 | $0.13 | 9.07% |
| Yen/USD | 0.9866 | 0.9013 | $0.09 | 9.46% |
The above remains a pattern that will likely result in higher oil prices well before we see significantly lower prices. As we have said for some time the energy complex will not enter a strong downside retracement pattern until the US dollar bottoms and turns upward. With a weak US economy and the Federal Reserve likely to cut interest rates again the dollar will most likely remain under pressure for the near term.
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
tel 845.368.3904
fax 801.383.7510
www.advancedenergycommerce.com
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