Alaron Energy Comment

CHICAGO - Mar 7/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

All right Alice, now you are freaking me out. It's oil in wonderland and with all the riddles and stories this may be the stupidest Texas tea party you have ever attended.  

Call the Mad Hatter as is seems this credit crisis riddle has no answer as we go down the rabbit hole and are lost in a world of macro-economic madness. The rules of the game have changed as the Fed runs around in circles and tries to make sure everybody wins and nobody ever loses. There may be prizes for everyone! In this new world of adventure for oil, things are not as they seem for  we have entered a world where increasing oil demand expectations are bearish and decreasing oil demand expectations are bullish.

Day-traders are living in a dream world as the market is giving them hourly opportunities to make a fortune and those that wait around for supply and demand to make sense might as well be trying to paint white roses red. Remember what used to be bullish is bearish and what used to bearish is bullish.  Sure it doesn't make sense but sometimes in the world of oil it is not supposed to.

Of course it does make sense but only if you focus on what the market is focusing on. Oil right now is a financial asset and a hedging vehicle, nothing more. Oh yes we will react to geo-politics and supply disruptions but predominantly oil might as well be gold silver or soybeans. When oil dropped in response to weak demand, for awhile it was  scooped up by traders who thought it looked like a cheap   financial asset. The introduction of commodity ETF's (Exchange traded funds) has made it so easy for investors to use commodities as a viable financial instrument and a hedge against all the bad things that can happen like when  the US  dollar collapses. Oil's recent surge  has defied weakening demand and rising supply and is  a clear illustration of the new strength and value of commodities as a valued asset class. Oh sure, for centuries commodities have always  been a  valued asset but with products like ETF funds,  perhaps the sensitivity to market conditions are more  extreme and timely then ever before.

Oil has a lot to be sensitive about. The housing sector is getting more bad news with record foreclosures. Hedge funds that are never supposed to get a margin call are having a  hard time getting credit and are being forced to liquidate positions that in turn cause more margin calls and causes more worries and credit tightens even further. This in turn will  have the Fed   lowering rates even further, causing the dollar to fall even more. When the dollar falls, that causes more buying of oil as holders of dollars desperate to protect their declining assets buys anything thing it can that won't lose value as their value disappears. At the same time demand for oil slows and supplies rise as the higher prices for oil and a slowing economy further squeeze businesses.

Like for example airlines. The Financial Times reports that British Airways warned that profits could fall by more than a quarter next year as a result of the surge in oil prices and the economic slowdown in the US and the UK. These types of stories will become more commonplace as we move forward.

What can change this game and get us to wake up from this wild and woolly dream? Very simply good economic news and  today's employment report could set the stage for a popping of the commodity bubble. A blockbuster jobs number may change the perception of the economy and the slowdown and cause a huge market correction. On the other hand a dismal jobs number will drive oil like crazy.

Technically with oil closing above 105 it's clear that oil traders believe that the news will continue to get worse before it gets better. As I said yesterday a close above $105 now targets the $110 area. And the way we get to $110 is not about supply and demand but with oil reasserting itself as a hedge against a weakening dollar.

Polar bears rejoice! Global warming has ended. Winter is never ending and natural gas supplies continue to decline. Based on the current rate of decline and future weather forecasts, supply will soon fall to below 1 trillion cubic feet. What happened to that insurmountable storage of over supply? Better hope we have a cool summer or we could see natural gas prices surge this summer! Maybe start buying some cheap way out of the money summer calls. Open your account with me today! Call Phil Flynn at 800-935-6487!

Day trade opportunities abound! Call for updates! Get your weekend started right! Sign Up for your free trial of Alaronenergies and get on the Phil Flynn Energy Blast! Just call me at 800-935-6487 or email me at pflynn@alaron.com. Also check out the Fox Business Network!

Buy April crude at 10185 - stop 10085.

Sell April RBOB at 27500 -  stop 27620.

Buy April heating oil at 28600 -  stop 28400.

Buy April natural gas at 927 - stop 907.

Have a GREAT day and weekend!  

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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