Alaron Energy Comment

CHICAGO - Apr 11/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

It's decoupling-a-mania! Don't pay attention to that man behind the curtain because all is well when it comes to the global oil demand outlook. Oil's long bullish odyssey continues and seems like it wants to continue despite the fact there are ominous signs that demand in the good old gas guzzling US of A  is continuing to slow and slow dramatically.

People are parking their cars and opting for trains, planes, (well, not American's planes) and buses as gas prices soar across the land from sea to shining sea. Yet despite this gloomy oil demand outlook, the market is assuming either that the demand destruction in the US will be  short lived or demand in the rest of the world will stay strong enough to not make a difference to the unrelenting bullish trend.

This seems to be the reaction, at least initially, to today's International Energy Agency report. Even though the IEA does not have the best track record when it comes to predicting demand, what they are saying about the decoupling of energy prices from US growth is enough to get the bulls another shot of confidence as if they were not confident enough all-ready.

The IEA  cut its estimate of 2008 global outlook on oil product demand on the diminished prospects for world economic growth. Yet on that slippery other hand and historically more important one,  said that the slowdown in the US will have little impact on global oil demand. Holy decoupling!

The IEA cut its 2008 world demand estimate to 87.2 million barrels a day that was down 310,000 barrels from its last report. Yet the report suggests that slowing demand in the US will be offset by strong demand growth in Brazil and China. How strong of an impact will demand growth outside the US have? The IEA said, “That the case for “decoupling� has some merit; for the first time, a sharp US economic downturn is not expected to cause such significant impact in key emerging countries."

This statement is confirmation of the bull's case they have been making since oil failed to break $85.00 a barrel in January and has driven us to the highs we have seen in recent days. Yet just because the IEA says that the world has decoupled from the world's largest energy consumer does not make it so over the long run. Perhaps in the short run bubble  economies like China can expand on its own for awhile. Yet if the US slows down  long and hard eventually the Chinese will feel the weight. China's torrid pace of growth has been a factor that I have been writing about for the last ten years as a major factor that would rally energy prices. Yet to do that you have to have a semi balanced world economy and growth in the US. The Chinese economy still is mainly an export driven economy and those exports must stay strong to continue to feed that rapid energy demand growth. To think that China will not eventually feel a US recession after a period of time is to deny the very essence of what made the Chinese economy prosper and that is  moderate priced merchandise  to places like Wal-Mart. To think that the Chinese partly controlled economy has developed to the point that it can handle outside global economic shocks coming from the world's largest economy over the long run is putting too much faith in their  quasi communist-capitalism system.

The industrial revolution in China that was built on cheap energy and its currency link to the US dollar   has forever changed the way the market has viewed the way we value supply versus demand. It's also putting too much faith in the global banking system that too should feel the aftershocks of the US liquidity credit crunch. Yesterday the Chinese currency -  the Yuan renminbi -  broke out of its rate of 7 renminbi to the dollar range. Now of course it's in the Chinese interest to allow the renminbi to float. The breakout was caused by more reports of red-hot Chinese economic growth. Of course that was backward looking. China's GDP was revised up to 11.9% from last years 11.4% for all of last year and as inflation in China screamed to an eleven year high.

Meanwhile back on the farm another airline bites the dust. ATA, Aloha Airlines, Frontier Airlines became the latest in a string of airlines to seek Chapter 11 and  American is  grounded for maintenance. Just and observation, if fewer planes fly, will they use less oil? Naah.

Check me out on the Fox Business Network! And get your account opened with me today! Call Phil Flynn at 800-935-6487! Or email me at pflynn@alaron.com.

We're short May crude  from apprx  11180 -  lower stop to 11105.

Sell May RBOB at 28510 -  stop 28810.

Buy May heating oil at 31050 - stop 29710.

Stopped  on long May natural gas from apprx 940  at apprx 999!!! Sell May natural gas at 1090 -  stop 1130.

Have a  GREAT  day and weekend!                      

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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