The Energy Report for Friday, February 2, 2007



If you think oil traders get all in a thither over the weekly supply reports, well you are right. But today there is an event that may actually have a greater and long lasting impact on the energy market. Will traders react to whether or not Punxsutawney Phil sees his shadow or not when he makes his way out of Gobblers Knob?



You think I am kidding you but there is no doubt that some people think that Phil the groundhog is a pretty good weather prognosticator and the fate of the oil market might actually come down to weather. And according to legend, If Phil the groundhog sees his shadow there will be six more weeks of winter, and if he doesn’t there will be an early spring. Of course seeing that we had an early spring in January Phil’s prediction of six more weeks of winter obviously means that oil will continue of its bullish rebound. Of course crude will have to break $58.00 first.



The UN is claiming that climate change is caused by humans and is warning of temperature increases by the end of the century. That’s not soon enough for me of course as tonight here in Chicago we are supposed to have wind-chill factor of 20 below. And this record cold is supposed to last into next week. Obviously if global warming is caused by humans someone out there is not working hard enough.



Business Week has an interesting piece on the predictive powers of the futures markets. According to the article a study by four government economists says more attention should be paid to a long-standing but little-headed indicator of where oil prices are heading and that is the futures market. And that indicator, as imperfect as it is, says prices are likely to rise above $60.00 a barrel and stay in that range for years to come.



The study that will soon be released on the CFTC Website will focus on the question of where oil prices are headed in the long run and points out that for years, nearly all of the trading in the oil market was in the short or medium term futures contracts. There was very little trading in oil for delivery more than three years out in the future and that the market was unreliable and largely neglected. A single big trade could move the price of oil up or down significantly because the market was so thinly traded. But as the article and study points out, the futures markets have matured since the year 2000 and the number of open long-term contracts has shot up. Now the prices of the long-dated futures are being viewed by market participants as a more reliable indicator of where oil prices are headed. Maybe even more reliable than our friend Phil the groundhog!



The CFTC study was authored by Michael Haigh and others and largely said that the reason why the out months in crude oil have traded has been the increased interest in swaps. In fact the CFTC says that the International Monetary Fund has been asking the CFTC what they could do to encourage more trading in longer dated futures but as James Overdahl says, this is already happening on its own. A good read!


We are long March Crude from apprx 5151 on the rollover- raise stop to 5550!!



Bought March RBOB at apprx 15200 - stop 15050.



We're long March heating oil from apprx 15600 - leave stop at 16000!!!



Buy March natural gas at 710 - stop 680.



Go Bears! And have a GREAT weekend!