Alaron Energy Comment

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

Peak problems are facing oil and asking you to take a leap of faith one way or the other. Are oil prices near the peak or is oil supply hitting a peak?

Does oil keep moving higher because the world is starting to believe that we are running out of oil or is it because in a world of economic uncertainty, oil seems to be a safe happy place to put some money? Sure, yesterday we saw another record close in oil as pipeline problems and the lack of passion about the dollar. Yet it dose not answer the larger more all encompassing debate on oil: Are we very simply are we running out?

The funds have found a safe happy place in oil as the CFTC reported that speculative long positions increased by 40% before the week before.  Are speculators buying oil because the fundamentals or because they are running out of places to put their money. OPEC is not worried about supply but perhaps the market is as it seems to discount all evidence of slowing demand.

Well I get plenty of emails saying it's all about peak oil and that the world is running out of oil. Well if that's true then why is December 2010 oil trading at such a discount to the front end of the market? If we are running out of oil and that is the reason oil is so high, then why wouldn't oil be much higher further out. Shouldn't we have even less oil the further out in the future we go? Well some stories today seem to suggest evidence that we are nearing a peak and others well not so much. I guess with the question of peak oil it is sometimes a matter of faith.

The front page of today's Wall Street Journal says, “Russian oil slump stirs supply jitters.â€�  â€œRussian oil production, for years a vital source of new supplies for world markets is showing signs of a slump, adding to uncertainties that have helped push oil prices to record highs." Russian oil output fell for the first time in a decade in the first months of this year, according to the International Energy Agency. The IEA said that output was down about 10 million barrels a day, a 1% drop from the first quarter of 2007. "Declining oil production from the world pressures  an already strained market and adds to the potential for higher prices for a global economy coping with a slowdown.â€�

This story is  really about peak oil production  or is it about a cold winter and the seeds of mismanagement by the Russian government that has moved to further nationalize supply. The former Soviet government ran the oil industry into the ground and now it's Putin's turn. Or as the Wall Street Journal said that Russian oil production growth is no longer an  eventual cure for  high prices and can not  be taken for granted! Thanks Vladimir.

Yet the seaweed is always greener in somebody else's lake. You think about going up there and that would be a big mistake. Then just when you think we are running on empty, Brazil makes a major discovery. The AP reports that a deep-water exploration area could contain as much as 33 billion barrels of oil, an amount that would nearly triple Brazil's reserve and make the offshore block the world's third-largest known oil reserve, a top energy official said Monday. The AP says that, "National Petroleum Agency President Haroldo Lima e Janeiro  cautioned that his information on the field off the coast of Rio de Janeiro is unofficial and has to be confirmed. The field could contain as much as 33 billion barrels of oil. Brazil's current reserves are estimated at about 11.8 billion barrels.

The bigger question regarding the peak oil production theory is  how much more oil is there to be discovered under the sea. New technologies have opened up a new frontier and most of the earth is mainly well under the sea. That might not help us today but maybe that's why oil is trading cheaper further out. High prices always eventually cure high prices.

Oil inventories should rebound big again as the imports into the gulf should rise.

Check me out on the Fox Business Network!  Also sign up for your free trial of Alaronenergies and  get on the Phil Flynn Energy Blast. Call me at 800-935-6487 to open your account!

We're short  June crude from apprx   11230 -  stop 11300.

Sell May RBOB at 28850 - stop 29000.

Buy May heating oil at 31000 -  stop 30700.

Buy May natural gas at 970 - stop 950.

Have a GREAT day!                      

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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