Alaron Energy Comment

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

Fannie, Freddie, Lehman and China   throwing stones in glass houses.  

Lehman Brothers warns about Fannie and Freddie yet there are signs that Lehman  is having some issues of their own.

At first it looked kind of simple that  oil would  fall hard after  all the angst of a long holiday weekend.  Oil looked like it had put in a post holiday seasonal top. Tropical storm Bertha turned out not to be a threat to US oil instillations and no one attacked anyone over the weekend. Iran's Foreign Minister started last week to try to ease rising tensions over its nuclear program by saying that there is a new atmosphere for negotiations. Like give us money and goodies.

There was more good geopolitical news as a report crossed that Israel signed a deal with Hezbollah to swap Lebanese prisoners for two captive Israeli soldiers. One might remember that the capturing one of those Israeli soldiers caused oil to spike.

Yet things became a bit more complicated when some stories about and by Lehman Brothers made the headlines. Now what is the rule about stones and people who live in glass houses? Lehman Brothers lobbed one stone at Fannie and Freddie and some were then lobbed back at Lehman Brothers.

After a dutiful sell-off, oil rebounded a bit when Reuters News reported that, “Energy pricing agency Platts has put Lehman Brothers under a temporary review that effectively excludes it from trading benchmark-setting oil contracts, four sources close to the matter said on Monday.â€� Reuters said that, “the exact cause of the move was not immediately clear, although the practice of disallowing a market player from trading during Platts price-setting window is variety of reasons, from credit issues to trade disputes to shipment technicalities.â€� One unnamed source said that it was indeed credit issues. Any issue like that  is bad news about a major investment bank and is bad news for the dollar. When the dollar got wind of this story the wind came out of its sails. But this was just one issue that was pushed back deep behind the headlines as Lehman Brothers threw stones at two much larger fish. (Yes I k now you don't catch fish by throwing stones.)

Lehman Brothers shocked and tanked the stock market as a Lehman  analyst said in a report that an accounting change may force Fannie and Freddie to raise a combined $75 billion dollars in capital and that the company may have to take further big time write downs. This tanked Fannie and Freddie's stock and despite the misdirection, Lehman Brothers did not fair well either.

Now some might think that with all the financial woes we might see oil being bought as a hedge against systemic risk and a hedge against a now suddenly again weakening dollar.      

Still oil had more bearish stories. For example a story that there are signs that the China's unquenchable thirst for oil may be slowing a little bit. Reuter's news reported that Conoco Phillips has booked a tanker to ship 60,000 tons of fuel from south China to Singapore in a rare move spurred by weak demand from Chinese utilities struggling to cope with high prices. Reuter's news also reported that Asia fuel prices slips as demand from China on Monday, as cracks and differentials were anchored in deep discounts on poor demand from power plants in South China to Singapore, a rare move spurred by weak demand from Chinese utilities struggling to cope with high prices. Ship Bunkers and traders said on Monday that the world's fifth-largest refiner had booked a mid-sized tanker to load a fuel cargo on July 20 from south China, with a scheduled discharge in Singapore. Fuel oil typically moves from Singapore, a major blending, storage and break bulking hub, into China, the world's biggest consumer and seldom in reverse. Reuters says that utility demand for fuel oil in China's manufacturing hub of Guangdong has been weak due to high prices.    

 Are lifting oil price subsidies starting to take effect? Are they switching to coal? Will China demand really drop after the Olympics?   Will slowing demand that is prevalent in the US start to spread and can oil focus on that and ignore the larger macro issues? It probably depends on how scary the stock market gets today. If the stock-market gets crushed and the dollar gets hammered oil should spike higher  again if only for a little while. If stocks stabilize than oil should get hammered.

Don't you get hammered, call for my daily energy blast and check in for intraday updates. Just call me at 800-935-6487 or email me at pflynn@alaron.com to open your trading account. See me on the  Fox Business News Network!

We're long August crude from apprx 14300 - raise stop to 13800.

Stopped on long  August RBOB  from apprx 34700  at apprx 34400. Sell August RBOB at 35500 -  stop 36000.

Buy August heating oil at 39000 -  stop 38700.

Buy August natural gas at 1270 - stop 1202.

Have a GREAT day!      

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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