Oil, Lower Inventories=Higher Prices
Research for Online Investors

by John Dalt

5/20/09

The EIA released their weekly report for petroleum, USO shot up another 3%.  Crude oil stocks have drifted lower for the last two weeks, shoving prices higher.  While inventory is 48% above last year, it is 2.1% less than last week.  Crude oil imports dropped over a million barrels per day, since the first of the month!  We are now importing a half a million fewer barrels of crude per day than we did last year.  The market is responding higher, anticipating summer gasoline usage and economic recovery that requires higher energy usage.  USO continues to be my weapon of choice to capitalize on this price movement.  The EIA report is straightforward for a government publication; you can read all about petroleum this week.  Be sure to click on the headings for different commodity reports.  It appears that OPEC's supply cuts are starting to catch up with usage.

Here are a couple of charts that show the decline in inventory and days of supply.

Maestro key the music,
“ Higher oil here I come, right back where I started from.”

Natural gas dropped these last few days.  It is not on lows but may have gotten ahead of itself.  Natural gas needs the economy to recover and start growing.  The stock market seems to ignore the bad economic news, natural gas traders do not.

California voters said “nyet” to more taxes yesterday.  Out of six referendums, only one passed.  Voters denied elected officials raises until their government balances the budget.  The Los Angeles Times covers the budget meetings and gnashing of teeth going on in Sacramento.  California faces a $21.3 billion deficit in the next fiscal year.

Yesterday saw the heads of many of the world’s automobile companies smiling behind OH! Bama as he announced that the administration would seek authority to increase CAFÉ standards.  I am incredulous, additional regulation is applauded?  Sam Kazman, general counsel of the Competitive Enterprise Institute said, “costs for building a fleet that can meet the mileage and emissions requirements will be such a burden that one of the three domestic automakers, which are in failing financial health, might not survive .”   Investor’s Business Daily report, “Supporters of the harsher standards like to point out that the industry would rather have a single federal standard for greenhouse gas emissions than a patchwork of state standards. (California has tried to establish its own greenhouse gas limits.) That might be so. But as Kazman says, all carmakers are doing is asking for one noose around their necks rather than several.”  It hard to imagine smiling as the noose is tightened.  They evidently believe they can escape the fate that awaited Rick Waggoner.  Who is John Galt?

The FOMC (Federal Open Market Committee) announced that large-scale purchases of treasuries are a form of stimulus.  Our SwingTrader position on interest rates took a 2% hit, for now.  We are still up, we just want to make more before we cash in our profits!  The dollar dropped, as the Fed buying our country’s treasuries is tantamount to an international shell game.  I feel like a Las Vegas Casino taking a bet on interest rates.  We may be fighting a player with deep pockets, but the Fed feels more like a bloated Rocky Balboa.  The Fed hinted they might increase the 1.75 trillion dollars already committed to buying treasuries. Only another few trillion would be needed to buy them all.  The more they buy the more inflation.  The more inflation, the higher gold, silver, oil, and interest rates go.  GO FED!  Idiots.  You might as well join the SwingTrader; after all if you cannot make money of your government’s stupidity, who can you make money off of?  Plus, it is completely guaranteed, and cheap!  Put your trades in and go about your business.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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