Alaron Energy Comment

CHICAGO - Feb 1/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Welcome Ladies and Gentleman to the Greatest Farce on Earth. This time live from Vienna Austria where the OPEC cartel will try the death defying act of talking out of both sides of their mouth and at the same time leaving world wide oil production unchanged.

OPEC  has proven once again that when it comes to the world economy and their responsibility for high oil prices they believe without a shadow of a doubt that there is a sucker born every minute. OPEC has decided to leave output unchanged. Now mind you ladies and gentleman that high oil prices are not the fault of the OPEC cartel! Oh no they're not!  According to these masters of production it's the fault of those sleazy speculators. Oh yes, those speculators and those nasty little geo-political tension are, according to OPEC,  adding at least $30 to the price of a barrel of oil. So obviously OPEC has no choice but to try to hold production steady in a slowing economy and defend $90.00 plus for a barrel oil.

Well wait just  a minute. If it's the speculators that are to blame for $30 a barrel premium for the price of oil then why is OPEC so determined to defend these price levels? If what OPEC is saying that the fair price for a barrel of oil should be in the 60 dollar a barrel range, why do they care so much that oil has fallen  $10 .00 a barrel from the peak of  $100.00? If they are already getting a $30 a barrel from  speculators   thus creating record revenues then why in heavens name would they want to encourage those same nasty little speculators by speculating more about a potential March production cut? That's  right I said CUT! If OPEC has such disdain for the speculators and the unfair premium they have put in the price of oil then why, may I ask, are they not doing what they can  to shake those same speculators out of the market?

Let's face facts.  Despite  OPEC's declining influence on the world oil markets they could smash those speculators with a well placed comment or two and knock those specs for a loop. They could have caught the specs off guard and sucker punched them with a production increase. They could play with the specs heads and tell them they were interested in bring prices back down to 30 a barrel a level. Why not 30 dollars a barrel? That was a price they said was too high and a speculative driven price just a few years ago.  But no. What did they do! Nothing! Nothing but try to point the finger of blame away from where it belongs.

The truth is that the reason that prices have soared that last $30.00 is  mainly due to the US housing crisis.  The aggressive rate cuts by the Fed have created a commodity buying frenzy that has propped oil up even as demand has begun to wane. This has created a potential oil price bubble that is delicate and may pop at any moment. OPEC's desire to get what, according to their rhetoric, is an unfair return on a barrel of oil may be the catalyst that could  prick   that bubble. With the US economy on the ropes and the rest of the world also facing significant challenges OPEC is piling on adding to the stress on the world economies.

Now that OPEC's dirty little deeds are done, it's all about the economy again. This week's jobs numbers will be huge. The weekly claims numbers yesterday may be hinting that this report might get ugly and could overshadow the end of the month short covering rally that brought back the stocks. If the jobs numbers are bad it might explain why gasoline demand had close to a record drop. If the jobs numbers are bad it's clear that demand for gasoline will falter and pressure oil and the products.

The next debate that is still  going on  is whether or not China's demand growth for oil can alone support the world's price of oil. The IEA says that world oil demand will fall by 1.5 million barrels a day which is 1.7% of world consumption. But will it slow even more if the US slips into recession. Can China's growth carry $90.00 a  barrel oil all by itself? I do not think so as I have said before but others disagree.   Mark Gongloff at the Wall street Journal says that China's economy is highly energy intensive and by some estimates a 1% rise in GDP is matched by a 1 percent rising energy demand. Mr. Gongloff says that both the IMF and Goldman Sachs Group forecast that China's GDP will rise by 10% which is down from  last year's 11.4%. The government is still worried about inflation and is taking steps to cool off the economy.  China's energy intensive industries  will have little impact on the 84 million barrels of oil we consume every day. Mr. Gongloff says that even if China's industry  slows more dramatically,  the government spending its cash reserves on building infrastructure to keep unemployment at bay will continue to keep energy demand high.  Still despite China demand raising the impact of the US slowdown will be hard to ignore. The price of oil, in my mind, is already pricing in strong China demand and to my mind, over pricing it in. The debate  will rage until the last  barrel  is counted.

Are you watching the Fox Business Network Yet? If not what are you waiting for! Get signed up for your free trial of Alaronenergies and get hooked up on my daily email blast and open your account by call Phil Flynn at 800-935-6487! Coming soon will be the new and improved Phil Flynn Blast! Get signed up now! Call me at 800-935-6487 or email me at pflynn@alaron.com! Go have fun in the snow! It's a winter wonderland in Chicago!

We're short  March crude oil  from apprx 9090 -  stop 9290.

We're short March RBOB from apprx 23300 -  stop 24100.

Sell March heating oil at 260 -  stop 278.

We're short    March natural gas from  apprx 812 -  stop 816.

Have a GREAT day!              

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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