The Energy Report for Wednesday, January 10, 2007



I don’t know what was more exciting: watching the New York Giants come back against the Eagles this weekend only to fall short or watching the crude oil market erase a huge deficit only to fall short of closing higher on the day. Oil prices took out the major support of 5486 and tumbled a dollar below that support as bulls fled the market. Yet the selling ran out of steam and the market rallied back strong and actually traded higher on the day at one point yet failed to make a higher close on the day.



Had crude oil closed higher on the day it would have been a strong sign that perhaps the low was finally in but by falling short it looks as empty as the exciting Giants comeback now seems. Still the one thing technically the bulls have going in their favor is the inability of crude to close below $55.00 a barrel which could be a topic of conversation and a sign of a bottom if it fails to do so today especially because most analysts are looking for a somewhat bearish supply report. Most are looking for builds across the board.



The Russia-Belarus dispute continues to go on as Russian President Vladimir Putinr refuses to back down. The Financial Times reported that Angela Merkel, the German Chancellor, denounced the actions of Putin as not acceptable and pointed out that not even in the height of the cold war was Russia a reliable supplier to Europe. Putin said he wanted to do all he could to ensure oil supplies in Europe but at the same time told Russian oil companies to cut output because of the dispute.



The Finical Times also says that in a sign of how seriously Germany now questions its reliance on Russia, a Merkel aid said this new dispute casts doubt on the wisdom of their country’s plan to phase out nuclear power by 2020.



The Energy Information Agency cut its world oil demand forecast to 86.2 million barrels a day and lowered its price forecast to an average of $64.42 a barrel. The reason is warm weather. Other forecasters at Goldman Sachs and Para Energy did the same.



The big grain report is on Friday and the focus for energy traders will be the size of the corn crop and to see if there will be any adjustments. Why do energy traders care? Well because of the ethanol market of course. There have been fears that the demand for ethanol will take a big chunk of this year’s crop. Ethanol is going to be a major factor in grain prices this year. In fact in today’s Wall Street Journal there is a story headlined that says, "Ethanol Bandwagon Picks Up steam”. The article says that, “In separate actions aimed at reducing “greenhouse gases”, California Gov. Arnold Schwarzenegger ordered a cut of “at least 10%” in the carbon content of motor-vehicle fuels used in his state by 2020, while governors of 37 states prepared to push for a new federal rule to require greater use of ethanol fuel.”



The article also says that President Bush is expected to express more support for domestically produced ethanol when he gives his State of the Union address later this month. Meanwhile Democratic leaders are talking up the need for alternative fuels and national emissions control.

So despite the drop in crude prices the corn market will still be on edge.



Will winter return? The natural gas market thinks so. We had a strong rally on the reports of colder weather and it got the market hopping. Accuweather has now joined Weather Risk in calling for a return to winter. We will see soon but just to be safe check to see if you still have your winter coat hanging around.



President Bush will address the nation tonight to outline his new strategy in Iraq. The markets and the rest of us will be watching.

See me today on CNBC Asia and on First Business TV.



Stopped on long February crude from apprx 5530 at apprx 5400. Buy February crude at 5400 - stop 5350.



Buy February heating oil at 15100 - stop 15000.



Buy February RBOB at 13700 - stop 13500.



Sell February natural gas at 702 - stop 735.



Have a GREAT day!