Alaron Energy Comment

CHICAGO - Mar 14/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Are you worried about stagflation? Well there really is no need to worry about it because it is already here. Well maybe not in the overall economy mind you, but definitely when it comes to the gasoline market it is.

The definition of stagflation of course is slowing growth and rising prices which  is telling the story of what has been happening with gasoline. Gasoline supplies are well above average and stand at a 15 year high. Yet despite this fact demand is slowing and gas prices continue to rise. Welcome to the world of gasoline where US consumers are getting hit both ways. For years many have scolded  US consumers for consuming more than their fair share of gas. The world has always accused  US consumers of gas guzzling  without regard to the price of gas or the world environment. That we continue to consume more than our fair share of gas as we obliviously go along in our gas hogged SUV. Of course I don't know about you but that kind of talk has always  made me proud to be a consuming American! One who values his freedom and his big SUV. The experts, myself included, was trying to tell the world that this excessive gas demand really was a good thing because it was a reflection of a strong economy. Sure gas prices rose but that was a good thing because it would temper demand in a roaring US economy and make sure that our overstressed refinery system would not breakdown as it struggled to meet demand. Yet now gas demand growth which has averaged 1% of average growth over the past six years is barley averaging 0.3%. Yet prices continue to soar to record highs.

What is obvious is that the laws of supply and demand for gasoline have repealed for the moment, next it will be gravity. So if you see yourself floating away you will know what is happening.

We know that really the laws of supply and demand have not been repealed.     What is driving gas is the price of oil and supply and demand for the dollar. Gasoline is made with crude that is trading at record levels. According to the EIA 50% to 60% of what you pay for gasoline is directly related to what the world is paying for crude. And you have to remember that crude oil is priced in dollars.

Oh and how has the dollar been acting on world markets? I was afraid you might ask. Demand for dollars seems almost non existent. The dollar fell to a record low as the world is convinced that  we're in a recession. Things are so bad that some are saying the Euro Zone has surpassed the US as the world's strongest economy because of the dollar woes. Sovereign wealth funds, hedge funds, banks, oil producing countries, exporter that service the US are doing everything they can to get rid of their dollars before they lose anymore value.

This situation with the dollar is a direct result of the fall out of the liquidity crisis and it impact on the world's perception of the US economy. The Federal Reserve has cut rates aggressive and that has added to the dollars woes and in my estimation has been directly responsible for added at least $20 or $30 dollars to the price of oil.   Oil prices are treading in dangerous territory as oil and gasoline are being played more as a hedge against the dollar and has little regard for supply and demand.

Some argue that the world economy can grow without the US and that will keep price strong. That worldwide demand cover is still low in part courtesy of the OPEC cartel. And we do have some global tightness of distillate supply caused by a long cold winter. Cracks are all cracked up with the distillate crack crackling and the gas crack just cracked. This is very telling and we will see seasonal gas versus heat spread go the opposite of seasonal norms.

See me on the Fox Business News Network Today! Don't have it? Call your cable operator and demand it!  Also sign up for a free trial of Alaronenergies! Just give me a call at 800-935-6487 or email me at pflynn@alaron.com to open your trading account!

We're short April crude from apprx 11020 - stop 11120.

We're short April RBOB from apprx 27400 -  stop 27500.

Short April heating oil from apprx 30200 - stop 30500.

Buy April heating oil at 29900 - stop 29400.

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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