Alaron Energy Comment

CHICAGO - May 8/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Oil supplies surge and the dollar rallies but never mind about that. Oil set a new high anyway!  

The way oil acted yesterday it seems that the world oil market views the US market as a mere annoyance in the larger global growth for oil story. It's not about supply and demand, at least not in the US, or at the very least it may be speculation on further demand in the future. But even when oil supplies come in almost 4 times higher than market expectations, even that was not enough to stop oil's almost inexplicable rampage. Oh  sure, we got a short time brake when the Energy Information Agency reported that U.S. commercial crude oil inventories increased by 5.7 million barrels from the previous week but not for long. That is despite the fact that current supply of oil is at 325.6 million barrels which is right smack in the middle of the average range for this time of year. It's not like we are tight on crude supply in fact supply is more than ample. That is especially if you compare it to demand by the refineries.

The EIA reported that U.S. crude oil refinery inputs averaged only 14.7 million barrels per day during the week which was down 99,000 barrels per day from the last week. Uninspired refineries continue to operate well below capacity with runs coming in at 85.0 percent of their operable capacity. For oil this is not bullish or at least it should not be short term. Especially when you consider that total products supplied over the last four-week period have averaged 20.6 million barrels per day which is only up by 0.1 percent compared to the similar period last year.  

To be fair there was one bullish element in the report and that was on the distillate side and that drove momentum. Distillate supplies that are supposed to easily rise at this time of year are falling further below average. It looks like the lack of global warming and the new ultra low diesel regulation continue to take its toll on supply.

The EIA reported that distillate fuel inventories fell by 100,000 barrels and are in the lower half of the average range for this time of year. Distillate fuel imports averaged 187,000 barrels per day last week and production unchanged from the week before.

Of course in the spring are we not supposed to be focused on gasoline supply? Motor gasoline inventories increased by 0.8 million barrels last week despite expectations they would fall. Sure they should be rising at this time of year but supplies of gas are still in the upper half of the average range for this time of year and 7.6% above a year ago. Demand for gas is nothing to write home about either. The EIA reports that over the last four weeks, motor gasoline demand has averaged nearly 9.3 million barrels per day which is only up by 0.3 percent from the same period last year. The negligible increase in demand is below what you want to see in a robust economy.

Distillate fuel demand has averaged about 4.2 million barrels per day over the last four weeks, down 0.5 percent from the same period last year. Jet fuel demand is 5.8 percent lower over the last four weeks compared to the same four week period a year ago.

Still, for the oil market, it is all  about momentum. As I said technically if the market for crude closed above $120 we would see $125 and the way the market rebounded that looks like that is in the cards. Still the way the stock-market reacted to the surge in oil there is a growing sense that when it comes to the price of  oil, we can't afford to pay to much more. It seems oil is holding on to its seasonal momentum as well as gathering strength from worries about the loss of Nigerian oil supply. The bottom line is oil is not ready to top just yet and is still  going to fly on its own.  Yet I do have concerns. The rallies have been on light volume and seasonally this run is still on borrowed time!

I am getting caught up on the Emails! If I have not responded yet feel free to hit me again! I love all the great insight and responses get from all of you! The Energy Report readers are the best! Also my good buddy Rose Astorina who is fighting and beating cancer will be on the Fox News Channels Morning show talking her courageous battle with non-Hodgkin's lymphoma. She is also raising money to fight the disease by a cancer walk on Sunday, May 18.

Also check me out the Fox Business network and get your free trial to Alaronenergies. Call me at 800-935-6487 or email me at pflynn@alaron.com to open your trading account.

Buy June crude at 12000 - stop 11950.

Buy June heating oil at 33000 -  stop 32700.

Sell June RBOB at 31900 - stop 32100.

Buy June natural gas at 1060 -  stop 1030.

Have a GREAT day!                

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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