Alaron Energy Comment

CHICAGO - Jun 9/08 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Did anybody attack Iran over the weekend? Israel threats against Iran, $4.00 a gallon gas and a deteriorating jobs market shows us  the Federal Reserve is between a rock and a hard place. It's a hard place that lead to a historic surge in the prices of all the petroleum contracts of Friday.

It was a freakish oil market Friday as the market's worst fears -  some real and some imagined - exploded into a rhapsody of wild buying. What led to the blow up and what is one to expect from a market that has just gone wild.

First we have to asses the impact of the dollar on the prices of oil.  Not just the movement of the dollar though it is obvious it has had an impact on oil.   There are many analysts that will tell you  the dollar has nothing to do with the price of oil even though oil is priced in dollars. What part of priced in dollars do they not get? The value of the dollar at times will dictate what hedge funds and commodity fund will do with their dollars. I suppose hedge funds have no impact on oil either. So I guess buyers and sellers do not count in the price of oil either. Oil does not necessarily move in lockstep with the dollar but the dollar value has an impact. The dollar can determine how much oil one might consume. If you are in Europe, the strong euro means that if you are buying oil and converting your currencies to dollars you can buy more oil with a strong euro than you can with a weak one. The weak dollar on the other hand has made it more expensive in dollar terms as you buy oil on a global market where your currency is worth less. Saying that the price of oil has nothing do with the dollar is almost like saying weather has nothing to do with the price of oil. Weather does affect the price and sometimes more or less but is a factor. Now you can argue to what extent the dollar effects price and that is a valid argument but to say it has no effect is just plan wrong.

Bolstering the argument that the dollar indeed has an impact on oil is the catalyst that helps start the biggest rally in the history of the world oil markets. If you remember oil was weak and in the $121 a barrel handle when European Central Bank Chairman Jean Claude Trichet spoke about raising interest rates to fight inflation and dismissed Fed Chairman Ben Bernanke's comments that the weak dollar was adding to inflation and reinforcing inflation expectations.  The problem with that is  if the EU raises rates and the Fed does not, the dollar will get weaker and the  euro stronger. The EU basically said the dollar is our problem and we need to fix it ourself.

Of course that is a lot harder to do after the weaker than expected jobless rate. We can't raise rates to shore up the dollar unless we want to put more people out of work and more pressure on an already stressed financial system that is  having a hard time collecting loans. That means more write downs on top of the write downs that are already to come.

The EU is basically saying that the US should go through a big recession clean up the mess and let the chips fall where they may. Of course those chips will start to fall on the European banks next and then of course  it will be a Trichet problem.

Oh yes, we can not go without saying that another  reason oil  went up on Friday is the peak oil production talk. The world is running out of oil and the markets have just figured that out on Thursday.

Have you checked out the Fox Business Network yet? Do it today! Also call for your free trial of alaronenergies.com and get on the Phil Flynn Energy blast! Just call me at pflynn@alaron.com or call me at 800-935-6487 to open your account.

Sell July crude at 13430 - stop 13460.

Sell July RBOB at 360 - stop 365.

We're long  July heating oil from apprx 35500 -  raise stop to 38800!!!

Buy July natural gas at 1240 -  stop 1170.

Have a GREAT day!

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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