80 Proof
Phil Flynn I PFGBEST - 03 March 2010

Oil traders may need a stiff drink after the wild end to yesterday’s trading session. Something strong like 80 proof or at the very least, proof that oil can close above 80. Oil prices failed to remain in octogenarian territory after a slow, relentless creeping rally that rejected a test of $81 and reverses all the way back into the 79 handle. For whatever reason the oil market is having a hard time staying above $80 as traders try to explain why oil prices were so strong yesterday in the first place. Oil prices seem to creep higher all day in kind of a confused session as the market ticked one level of buy stops after another. Some said that oil was following the stock market. Other said that the stock market as following oil. Some said gold was following oil yet it was obvious there was no real consensus as to the nature of the strength and was probably the reason oil failed to be a Star 80.

That is not to say that there was not some bullish news. Some tried to say that because of power outages in post earth quake Chile that refineries being shut would lead to a surge in imports. Products did seem to lead the rally. We also had a couple of US refinery glitches and hiccups that probably helped petroleum products along the way.

Stocks were also higher for the third day in a row in part because the market was anticipating a plan by Greece to deal with their debt. Yet today the market seems less than impressed. The markets seemed uninspired with the Greece plan or formula if you will because it includes budget cuts and an increase in their value-added tax. The cuts and taxes are supposed to raise 4.8 billion Euros this year. Now that Greece has tried to show that it can impose some fiscal restraint is there anything they want in return? Greece’s Prime Minister said that Greece now justifiably expected EU support. Well there you have it.

We also had reports from OPEC member UAE who warned that demand for OPEC crude oil might fall by 100,000 barrels a day. The comments by United Arab Emirates oil minister Mohamed Al-Hamli raised some concern that OPEC may take a harder look at their compliance to production quotas at their upcoming St. Patrick’s Day meeting. This came as Saudi Arabia’s state-owned oil company, Saudi Aramco, raised official selling prices for all crude grades except heavy, for customers in the U.S. for April and lowered prices on all grades to Europe and most for Asia.

The energy complex also got support yesterday from a Bloomberg report that said that more than 300,000 barrels a day of Nigerian Forcados crude output remain suspended due to sabotage on Royal Dutch Shell Plc’s Trans Forcados Pipeline, state-owned Nigerian National Petroleum Corp. said in an e-mailed statement. Also deferred for the same reason is 140 million standard cubic feet a day of natural gas. The pipeline has 55 “vandalized points,” NNPC said.

On the bearish side there is a report that Russian oil production in the month of February came close to a post-Soviet record in February as TNK-BP, the venture owned by BP Plc and a group of billionaires, raised output at new fields in both western and eastern Siberia. Bloomberg says that Russian crude production reached almost 10.08 million barrels a day, a gain of 3.3 percent from a year earlier and 0.2 percent from the previous month. Russian output has exceeded 10 million barrels a day for six months in a row, was slightly below the record that was set last November.

Today the focus will be on jobs reports and oil inventories. We have the ADP as well as the Challenger survey that traders hope will give them some insight into this week’s all important jobs number. Now there have been reports that these numbers should be bad because of the weather so the market might start preparing. Once we get through those numbers it will be onto oil inventories. Last night the API gave us their version. The API reported that crude stocks increased by 2.7 million barrels. That was the first increasing in awhile yet it came at the expense of distillate stocks which fell by 4.1 million barrels. Gas stocks were up by 909,000 barrels. Crude runs were up by 32,000 barrels and one reason cruse supply increased was an increase in imports. Cruse imports were up by 240,000 barrel a day. We also broke the losing streak in Cushing, Oklahoma with an increase of 997000 barrels.

Oil bulls have to be 80 anxious. Oil has had many failures around $80 a barrel and makes this a key resistance. You can only fail at this area so many times before the momentum shifts. Oil has been trying to trend higher yet as I said, the daily ranges are offering better opportunities then just a simple long or short position. If oil cannot close above $80 by the end of this week, more than likely oil will start probing the lower end of the range near $70. Long term my charts and the fundamentals still favor a larger move to the downside but the timing for the big move is still unclear. With the price of oil being propped up by global central banks it is hard to know when this bubble will burst. Still with the shoulder season upon us and rising global production, if oil fails on this rally to sustain $80 the big move could be coming sooner rather than later. If you want a way to play it call me for the latest strategies at 800-935-6487 or email me at pflynn@pfgbest.com to open your account. And see me every day on the Fox Business Network!

Late Breaking! A Saudi oil tanker was taken by pirates. Another attack in Nigeria on oil!

Phil Flynn
Senior Market Analyst
800-935-6487
312-563-8344
pflynn@pfgbest.com

Phil Flynn is Energy Analyst and General Market Analyst with PFGBEST (www.pfgbest.com). Phil is one of the world’s leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil’s market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, traders and global media.

Because he has been available to media around the clock, even during some of the most turbulent market periods in history, and because he has built a solid reputation for accuracy in his market analysis and forecasts, through thousands of interviews and broadcast appearances for more than a decade, Phil Flynn has become a headline-making name even as he continues to provide expert advice and customer care to his proprietary trading account clients.

Media highlights include: CNN, CNBC, Bloomberg, ABC, CBS with Katie Couric, NBC’s “Today Show” and “Nightly News with Tom Brokaw”, FOX’s “O’Reilly Factor”, PBS’s “The Newshour with Jim Lehrer” and “Nightly Business Report”, MSNBC’s “The News with Brian Williams”, Wall Street Journal Report, The Wall Street Journal, Business Week, Investor’s Business Daily, The New York Times, The Los Angeles Times, Chicago Tribune, Associated Press, The Toronto Globe & Mail, Houston Chronicle, Futures Magazine, National Public Radio’s Marketplace, a chat with the President of the United States, and many more venues.

You can read Phil’s daily market analysis and blogs at www.pfgbest.com.

PFGBEST is among the largest non-clearing U.S. Futures Commission Merchants, with customers, affiliates and brokerage offices in more than 80 countries. The company is a leader in sustainable investing through diversified products including managed funds, futures, forex, options, full-service and discount brokerage, trader education, market research, and direct online futures trading through its BESTDirect™ platform, and numerous other platforms and applications.

Phil’s commitment to and experience in futures trading is documented in two books, The Mind of a Trader (Financial Times/Pitman,1997), and Trading Online (publisher, date), both by Alpesh B. Patel. Phil is a lifelong resident of Illinois. He attended DaleyCollege in Chicago before beginning his career on the trading floor of the Chicago Mercantile Exchange.

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