Alaron Energy Comment

CHICAGO - Jun 3/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Why did oil rebound again from the $125 a barrel level? Well let me count the ways. Sure as I keep saying $125 is the line in the sand that keeps the bulls in charge of this market, yet there had to be more than just the same old technical excuses.

And there were; there were many. It is easy to give a list but the hard part is knowing where to start. And once you start, then it's hard to know if that one reason was better than other reason. So let's just rock and you can be the judge.

Because natural gas led the way one might think that weather was the culprit. We did have tropical storm Arthur that served as a reminder that the  hurricane season has begun in earnest, yet Arthur really did not effect anything in energy. No platforms were closed or refineries blown off the face of the earth. Still there are concerns that the conditions are right to produce more tropical storms.

That cannot be the only reason that   natural gas rallied and led the way. Some said gas rallied on hot temperatures. Who would have thought it might get hot in June? Ongoing issues with the Independence hub also have been a supportive factor as gas led heating oil and then RBOB and crude. Reuter's Eileen Moustakis reported that the Independence hub natural gas production platform in the Gulf of Mexico remained shut Monday, despite market rumors to the contrary. The pipeline was supposed shut in April and then expected to open in May and it is still off line due to a pipeline leak.  

Yet weather really doesn't explain it so let me go macro on you  with the deeper macro economic reasons. Yesterday's ISM manufacturing data came out a bit stronger than expected and some assumed that maybe, just maybe,  it might lead to more demand for natural gas and hence other energy products. Yet hasn't energy over recent months rallied more because investment funds were seeking out safer pastures because of a lack of confidence in paper? The stock market got pummeled yesterday as the market came to grips with the fact that Morgan Stanley, Lehman Brothers and Merrill Lynch all had their credit ratings lowered. The reason is that it is expected they will soon have to go through another round of write offs. That led to flight to quality buying in the US treasuries and may -  if you make a stretch -  have infected the oil market as well. Oil of course is not just a commodity but a macro economic indicator.  If more credit fears surface it may  infect the oil market again and we could see more  hedge buying.

It might not be if  George Soros has his way. The Financial Times reports that oil and other commodities are a bubble in the making and those commodity indices are not a legitimate asset   class for institutional investors. And why is it not legitimate? Soros is expected to say that rising oil prices are a result of a number of fundamental changes and factors in the market, but the recent ability of investment institutions to invest in the futures through index funds are exaggerating the price and creating a bubble in price. Soros says that he finds commodity index buying eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987. If stocks crash because of oil wouldn't the price drop  in  oil then  save the stock market when the oil bubble popped? Then the guys who lost value would only be the guys that bought the commodity funds.

Well bubble or no bubble comments from Iran were also a factor in the crude oil come back.  Top OPEC officials also said that there is no need for an extraordinary OPEC meeting. Iran says that there is plenty of oil in the market. Well I don't know if there is plenty of oil in the market but there is plenty of oil sitting in Iran's harbor. No one seems to want their stinking heavy crude.  More Iran rumors were reported and President Ahamadinejad added to the intrigue by saying Israel will soon disappear. Now either Ahamadinejad is a magician who thinks he's  David Copperfield in disguise  or  that was another threat made by the Iranian President.  He also said that the US might disappear too. Now if we could only sit down and talk to this guy I am sure all would be well with the universe.

Weather is not enough and if you don't like the macro angle how about a potential Norwegian strike! Norwegians love to strike.  Oil rig managers on the North Sea platforms are threatening to go on strike June 7. Stay tuned!

The weak before the strong.  Before all this bullishness, oil had been down yesterday testing the  all important $125 a barrel area. The reason that most gave was the strong signs of weak demand and demand destruction. Weak demand for gas and many counties lifting oil subsides but it seems the airlines are most sensitive to these sharp increases in costs. There was a report by the International Air Transport Association that says  the airlines could lose 6.1 billion dollars in their worst year since 2003.  

Turn your year around and sign up for the Phil Flynn Energy blast and open your trading account. Just call Phil Flynn at 800-935-6487 or email me at pflynn@alaron.com. And most importantly don't forget to see me today with David Asmen and Liz Clamen on the Fox Business Network. You need your Fox Business so call your cable operator if you're not getting it yet!

Warning! The EIA is now releasing weekly inventory data 5 minutes late. So now it will be 9.35am for oil inventory and gas until further notice.

Iraq's oil production hit a post war high of 2.9 million barrels! The surge is working.  

We're short July crude from  apprx 13200 - lower stop 13350.

We're short  July RBOB from 34000 -stop 34300.

Buy July heating oil at 35500 -  stop 35300.

Buy July natural gas at 1130 -  stop 1070.

Have a GREAT day!  

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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