Alaron Energy Comment

CHICAGO - Jan 15/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Oil bears got frozen out on Monday as old man winter again reared his ugly head and commodities got up in the buy, buy, and buy more frenzy. Even the rebound in the stock market favored the oil bulls then the stock-market came roaring back on good news out of IBM who pre-reported much better than expected fourth quarter earnings and raised hopes that maybe entire world economy is not going to hit a brick wall.

That raised hopes that international companies can weather the slowdown in the US and might actually buy a barrel of oil  or two. Now mix in some problems in Nigeria and Venezuela and  it seemed that weather and geo-politics overshadowed the larger macro economic concerns that have recently taken a toll on the price of a barrel of oil. Yet today, will Citi-Bank  play stock-market spoiler? Stocks rallied but bonds are still bracing for more bad news.

President Bush also is telling Saudi King Abdullah about the recent surge in oil prices. The President said that high oil prices are tough on the economy and  warning OPEC that he hopes   OPEC understands that when their biggest consumer's economy suffers it will mean fewer purchases of oil and gas.  

But the impact of conflicting pressures on oil prices have made it harder for many to say the top for oil is in. Today's Wall Street Journal wrote  about what is the most important question that separates the bulls and the bears. The Wall Street Journal says, “Oil prices have disconnected from demand in rich countries, showing how the global oil market has become unmoored from some of the factors in the past.â€� Like supply in demand maybe? You guessed it! The Journal goes on to say that “for decades, slumping oil thirst in North America, Europe and Japan has sent oil prices lower because these regions accounted for much of the growth in crude consumption. But now, oil prices are hovering around record highs even though demand is declining in the world's top industrialized countries.â€� This is what I have been talking about recently when I have talked about the oil price bubble that has driven oil prices a lot higher than normal based on normal supply and demand situations. The Journal also says that tomorrow the International Energy Agency is scheduled to release data that shows  demand among the 30 members of the OECD did fall slightly in 2007 as consumers adjusted their consumption in the face of high crude oil prices and a mild winter.â€� And if 2007 was bad I wonder how bad 2008 might shape up to be. The Journal says, “That a year ago, when the Paris based IEA announced a similar drop for 2006- the first such fall since the early 1980's-analysts believed that oil prices were set to slide( but not me! ). And that the great price run-up of the last few years was over.(not then but perhaps now instead).  Prices went on a tear for the rest of 2007…..â€�   Yet this year oil has soared because of the Fed and the  credit crisis and I think demand will slow more than the magnitude of the price increase. Oil might have only rallied 10 or 15 dollars this year but the Fed and its actions have created an oil bubble.

The Journal says that oil hit the inflation adjusted record high of   $102.81 in 1980 and that “  The last time oil soared to record highs, in 1980 during the Iranian hostage crisis, industrialized countries responded by dramatically cutting their oil use. Prices fell accordingly. This time the demand drop among rich countries is tiny by comparison.

Energy costs weigh far less heavily on the economy. In 1982 the US spent 13.7% of its GDP on energy as compared to 9% last year. But while that is true The Journal also says “ebbing oil consumption has sprung from many factors; a shift in manufacturing to the service sector, a move towards more energy efficient cars and the introduction of alternative fuels.�

Which brings is to the grains, I could not let the day go buy without acknowledging a very important milestone in the grain complex! Beans are in the teens! That's right! The front month soybean contract made an all out assault on that old time rhyming bean bull battle cry that goes back as long as they have been trading grains! Well at least as long as I have been in the business. This was a price target that many bull bean traders have dreamed about and truly should be remembered as a momentous occasion to see $13.00 beans   in the front month, a price level that I thought we might see well before this exciting day finally arrived. Soybeans of course had teased us getting $13.00 in the past like 1290 but here we are hitting that all important price level. I remember a client I had back in the great drought of 87-88 that  called me every morning and to say beans in the   teens or drop some article of clothing!   Which I guess was his way of  saying beans to the teens or he would lose his shirt and perhaps his jeans? Now at this point I do not want you to picture this guy without his pants but needless to say no matter how bad that drought was, beans did not get to the teens. But now with beans in the teens the questions are, what drove us here and are we here to stay.

What drove us here is what we are drive and that is cars that we drive at the aforementioned push towards bio fuels. And we also need to mention the improving standards of living of people all over the globe. The strong demand means we can't grow enough of everything and some things won't get planted at all. And with corn at 5 dollars beans might have to get to the twenties. The USDA report on Friday pegged soybean ending stocks at 175 million bushels as opposed to 185 million bushels in last months forecast And 574 million last year! Beans are disappearing!! Production for beans on the acreage report is now pegged at 2.585 billion bushels, down 9 million bushels from last month! And 2.909 million from just a year ago! Beans are losing the acreage to corn and somewhere out there I bet that guy got his jeans back!

 Hey down under! See you down under on Sky News Australia!  Are you bearish energy and bullish grain? Call me at 800-935-6487 and ask for Phil Flynn to open your account!  

We are short Feb crude from apprx 9999! Lower stop to 98600!

Short Feb heating oil  from apprx  255 -  stop 265.

Short Feb RBOB from apprx 245 -  stop 250.

Sell Feb natural gas at 845 -  stop 865.

Have a GREAT day!              

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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