Alaron Energy Comment

CHICAGO - Ma09 14/09 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

The Energy Report for Thursday, May 14, 2009

Like a hurricane! Oil imports plunge to the lowest level in ten years causing a surprise week over week supply drop in crude oil -  the first according to the DOE since February -  and gasoline supply. In fact oil had the biggest import drop in any week since Hurricane Gustav. Of course this import drop was not caused by a normal hurricane but by an economic hurricane that continues to swirl causing incredible demand destruction and this week a surprisingly enough a surprise drop in supply. Oil seemed to head to EUROPE and China in favor of the US whose demand for oil is also near a ten year low.

The DOE reported that U.S. commercial crude oil inventories plunged by 4.7 million barrels from the previous week. That puts supply at 370.6 million barrels which is way above the average range for this time of year. Total motor gasoline inventories fell by 4.1 million barrels last week yet have fallen to the middle of the average range for this time of year and are at the lowest level since last December. At the same time, finished gasoline inventories and gasoline blending components also fell last week. The distillate fuel supply did increase by one million barrels.

Yet even a major drop in oil and gasoline supply was not able to overcome the increasing fears of rising demand destruction that were heightened not only by the weak demand that numbers that the DOE reported but also by a very disappointing retail sales report.  The consumer is freezing up and that is evident in not only  the weak demand for gasoline but also in the goodies they did not buy after filling up. Electronic and appliance sales were hit particularly hard yet building material and garden equipment  dealer sales  rose 0.3% on the month.

Still energies tried to rally and tried to ignore the collapsing equity and commodity world around it but as the stock market kept getting weaker and the dollar kept getting stronger the market finally gave into those weakening demand fears. And if you get the market focusing on the demand numbers in the report you might wonder why the bulls did not cry uncle sooner. The DOE reported that total products supplied over the last four-week period has averaged just 18.2 million barrels per day which was  down by 7.9 percent compared to the similar period last year and near a ten year low. Over the last four weeks, motor gasoline demand has averaged 9.0 million barrels per day, down by 1.2 percent from the same period last and at a two month low. Distillate fuel demand has averaged about 3.5 million barrels per day over the last four weeks down a whopping 14.1 percent from the same period last year. Jet fuel demand is down 10.3 percent lower than a year ago. Demand numbers that are so weak that the bullies all can't wait to kick sand in their face against a backdrop of an economy that suddenly seems a bit weaker today as the consumers kept their wallet in their pockets.

The International Energy Agency says that the world oil demand drop is near a bottom but a recovery is far off. They lowered their worldwide demand forecast by 200,000 barrels per day they also say that global runs to remain depressed amid weaker demand.  The IEA says world oil demand will be down 2.6 million barrels per day or 3% versus a year ago. China demand was unchanged from the previous month with demand down 0.9% versus a year ago.

Still oil technically is still in an uptrend. With refinery runs low and gas supplies coming down we could get some seasonal support. Oil will rebound if the dollar falls and the stock-market rallies. And oil has had the propensity to ignore supply and demand fundamentals. Option expiration today could lead to a market come back so be prepared! In the mean time make sure you are watching me every day on  the Fox Business Network! And make sure you are getting the daily Energy Report! Just call for intraday trade adjustments and option recommendations. Call me at  800-935-6487 or email me at pflynn@alaron.com to open your account!

    We're long  June crude oil from  apprx 5700 - stop 4830.

We're long  June heating oil from  apprx 14700 -  stop 13900.

Buy June RBOB  at  15000 -  stop 14200.

Buy June natural gas at 390 -  stop 330.

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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