Yet the real issue in the oil market is news out of China that seems to suggest the government is concerned that the recent spurt in economic and commodity demand growth might be on an unsustainable path. The Chinese government says it is taking steps to try to cool growth in the in commodity hungry industries like steel, cement, and coal, glass and power industries by studying ways to curb overcapacity. This is a sign that the Chinese government is worried that some of their strongest commodity consuming sectors may be growing too fast and could create a bubble unless the government reigns in its excessive growth. This type of talk weighed on China stocks and gave strength to the dollar and at the same time lowered demand growth expectations across a wide array of commodities.

Sort of like what is happening right now in the US biofuels industry. A must read in today’s Wall Street Journal says that ‘the biofuels revolution that promised to reduce America’s dependence on foreign oil is fizzling out.” The Journal quotes the National Biodiesel Board as saying, “Two-thirds of U.S. biodiesel production capacity now sits unused. The Journal says, “Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices. The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors — biodiesel and next-generation fuels derived from feedstocks other than food. Ethanol, the largest biofuel sector, is also in financial trouble, although longstanding government support will likely protect it.”

The Journal goes on saying, “Producers of next-generation biofuels — those using nonfood renewable materials such as grasses, cornstalks and sugarcane stalks — are finding it tough to attract investment and ramp up production to an industrial scale. The sector suffered a major setback this summer after a federal jury ruled that Cello Energy of Alabama, a plant-fiber-based biofuel producer, had defrauded investors. Backed by venture capitalist Vinod Khosla, Cello was expected to supply 70% of the 100.7 million gallons of cellulosic biofuels that the Environmental Protection Agency planned to blend into the U.S. fuel supply next year. The alleged fraud will almost certainly prevent the EPA from meeting its targets next year, energy analysts say. The wave of biodiesel failures and Cello’s inability to produce even a fraction of what it expected have spooked private investors, which could further delay technology breakthroughs and derail the government’s green energy objectives.” Check it out!

Make sure you are signed up for the Phil Flynn energy blast and make sure that you are watching the Fox Business Network where you can see me every day! And if you have a question you need to ask just email me at pflynn@pfgbest.com or call me at 800-935-6487 to open your account. See all the services that PFGBest has to offer! We have many platforms and Forex as well a sweep system for equity from different types of accounts. Find out how!

Sell October crude at 7400 - stop 7620.

We’re short October heating oil from apprx 19500 - stop lower stop to 18900!

Sell October RBOB at 18550 - stop 18900.

Buy October natural gas 310 - stop 305.

Ahoy there matey! If you have been sitting on the dock of the bay waiting for your ship to come in well baby it has just arrived. Yo-ho-ho a grand booty hit our shores. Oil prices fail at $75 a barrel looking suspiciously like a double top and closing below the 20 day moving average as the market seemed to be fearful to advance ahead of what turned out to be a reversal of fortune from last week’s surprise drawdown in supply. Traders, or gentlepeople of fortune, for the second week in a row seemed to price in the results of the American Petroleum Institute report before it was released as it appears some of them have a good handle on what ships are or are not coming into the Gulf Coast. And shiver me timbers, once again the scallywags had it right. After the close the API reported by all the powers that be that US crude oil supplies increased by 4.3 million barrels, helped in part by a big rebound in crude oil imports. Those imports rose by 475,000 barrels a day back up to about 9.35million barrels a day a surge that seemed suggest that last week’s big build was an aberration. If the Department of Energy confirms this sweet trade then oil bulls will be forced to walk the plank as the bears declare mutiny on this latest bull oil trend.

Why was the oil delayed last week? The three obvious conclusions was weather, the contango and the diversion of supply to other ports that promised greater treasure. Last week’s supply drop seemed to separate oil somewhat from the ties it had bound to other markets at least temporarily. Oil closed lower as the stocks close higher and its direct inverse relationship to the dollar has been weaker. If the market breaks away from these ties it leaves the market more vulnerable for further downside pressure as the market will start focusing on weak seasonal demand and oversupply.

And speaking of demand, Bloomberg News reports that according to the MasterCard Inc. survey gasoline use slipped last week for the first time in four weeks as an unemployment rate above 9 percent and a hurricane that closed East Coast beaches reduced demand before the Sept. 7 Labor Day holiday. MasterCard Inc. reports that motorists bought an average 9.373 million barrels of gasoline a day in the week ended Aug. 21,That’s 2.2 percent less than a year earlier and 1 percent less than the week before. Bloomberg quotes Michael McNamara, Vice President at MasterCard Advisors as saying, “Although Hurricane Bill did not make landfall in the U.S., it did close a lot of beaches because of the riptide. And there are fewer people commuting this year and fewer taking long summer trips.” “From a pumping standpoint, we haven’t seen it this slow in August since 2004,” McNamara said. The API reported that gas supplies fell by 1.8 million barrels last week and distillates down 146,000 barrels.

The oil market seas are getting more choppy. Don’t be a landlubber, go seek your fortune! Make sure you are signed up for the Phil Flynn energy blast and make sure that you are watching the Fox Business Network where you can see me each day! And for all of you that are asking when you can see me on the Fox Business Network it is usually around 1 central each day. And if you have a question you need to ask just email me at pflynn@pfgbest.com or call me at 800-935-6487 to open your account. See all the services that PFGBest has to offer! We have many platforms and Forex as well as ways to sweep money from different types of accounts. Find out how!

Sell October crude apprx 7450 - stop 7620.

We’re short October heating oil from apprx 19500 - stop 19700!

Sell October RBOB 19550 - stop 19900.

Buy October natural gas 310 - stop 305.

Where are the Hardy Boys and Nancy Drew when you need them. Let’s start to unravel this mystery by trying to figure out why crude supplies fell. Did oil refiners all of a sudden get this sudden uncontrollable urge to make product? Well let’s start by looking at the refinery runs. Last week’s report show refiners were running at 85.9 percent of capacity. This week refinery runs fell to 84 percent. Refinery inputs fell from 14.8 million barrels a day to 14.5 million barrels day. Not quite the answer that we were looking for.

In fact what should have been more disturbing was the drop in product demand. Gasoline demand fell 300,000 barrels a day from the week before. Dow Jones Newswires gasoline demand in the 4 averaged 9.132 million barrels a day, lagging the adjusted year-earlier level by 0.1%.That’s the first demand 4-week gasoline demand lagged the year-earlier level since May 29. Gasoline demand in the latest 4 weeks was the lowest since May 15, down 0.9% from a year earlier. Distillate demand dropped by 900,000 barrels a day! So if it was not demand driven then it must have been a drop due to do something else. Now we are getting closer to solving the mystery.

Why did crude imports drop so suddenly? You have to look where the biggest drop in supply was. It was in the Gulf Coast. Gulf coast supplies that had been hovering around the 182 million barrel plus for the last three weeks or so suddenly plunged to 175.8 million barrels. Hmm, I wonder what happened in the Gulf Coast last week that might have slowed oil tankers. Was it in part it might be because some crude was diverted to Europe due to higher a higher Brent price?

Was it because, as Reuters News theorizes, there was a steep premium for long-dated crude oil futures some traders may have temporarily park more barrels off the U.S. Gulf Coast in order to lock in a higher price down the road? Are traders just playing the contango holding off deliveries in anticipation of prices rising later? Reuters says that stocks of crude stored offshore fell to 50 million to 60 million barrels in June and part of July, but several sources recently put them around 70 million barrels and rising.

Or is it perhaps because refiners are using sweeter blends of crude due to higher heavy grade prices? Perhaps but then why are refinery runs are still falling?

You see my dear Watson, there is truth in all of these theories and they no doubt played a part of adding to this mystery but could the real answer be as elementary as the weather? There were two storms in the Atlantic and just after the reporting period, tropical storm Claudette, the third of the Atlantic hurricane season, formed in the eastern Gulf of Mexico and moved ashore within hours. Is it possible that tankers looking at the weather wanted to wait out these storms in the ocean instead of trying to beat a path into the Gulf ahead of the storms? And could the massive move in oil be a short squeeze and therefore part of the reason why the market reacted the way it did. In part it was an old fashion squeeze if you please?

Let’s face it if oil was rallying because demand was surging or because supply was so tight any aberration might be critical but this drop in supply is not going to leave any refinery anywhere wanting. I do not think there is any refiner sitting around waiting for the ships to come in. Next week we will be waiting for oil’s ship to come in! If I am right they will be coming in and the inventory induced mystery will be solved. Of course you do not have to sit around waiting for your ship to come in! You can open your account with PFGBest today! Are you with the best? Call me for the latest trade and updates at 800-935-6487 or email me at pflynn@pfgbest.com And of course make sure you watch the Fox Business Network where you can see me every day!

Sold October crude at apprx 7250 and stopped at apprx 7320. Sell October crude at 7400 - stop 7600.

Sold September heating oil at apprx 19300 - stop 19700.

Sell September RBOB at 20500 - stop 20900.

Buy September natural gas at 270 - stop 248.

Sell Oct Crude 7450??

Yet late in the day some positive housing numbers gave the market a boost. The National Association of Home Builders/ Wells FargoMarket Index had a reading of 18 which was its highest since June 2008. First time home buyers credits seem to be a major factor in turning home builders feeling around and that piece of good news helped the market out a bit at the end.

And we seem to have dodged the hurricane bullet. Ana and Claudette have left the National Hurricane Center storm map and Bill looks to be heading away from key oil areas.

A potential bearish development for oil if the market believes it is an AFP story that says that “A top Iranian nuclear official said Iran was ready to hold talks with the West on its controversial atomic drive, “without preconditions” quoting Iranian state television. “Negotiations without preconditions is Iran’s main stance on the nuclear issue,” Iran’s envoy to the International Atomic Energy Agency, Ali Asghar Soltanieh, was quoted as saying. Stay tuned!

Are you getting the Fox Business Network? If you are not you are missing out where you can see me every day! Call your cable provider today! Is it time for you to trade? If you are ready call me at 800-935-6487 or email at Pflynn@pfgbest.com. Call for intraday entry and exits! See all the services that PFGBest can offer you. Metals, Forex, managed accounts you name it!

We’re short Sept crude from apprx 7150 - lower stop to 7000!

Sell September heating oil 19300 - stop 19700.

Sell September RBOB 20550 - stop 20900.

Sell September natural gas at 470 - stop 480.

After the Federal Open Market Committee pronounced that economic activity is “leveling out” the Fed announced that they would not expand or subtract from their quantitative easing program and they still plan to buy in total up to $300 billion of Treasuries, $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. Yet at the same time they signaled that if perhaps the economy continues to improve, it is possible that maybe, just maybe, the number of purchases may not be needed at a future date, or then again, maybe so. The Fed said that in an effort, “t o promote a smooth transition in markets” they will gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

In other words for the first time since 2006 the Fed is making a move to ease off the economic stimulus accelerator. Oh sure the way the Fed did it was typically Fed-ish. They signaled that perhaps quantitative easing might be nearing an end but then again maybe not. In one single Fed statement the Fed changed the economic world as we have known it and in another way they changed nothing and left the door open to market interpretation. It is clear that the Fed is moving in the direction of removing this historic rash of economic stimulus but reserves the right to change its mind at anytime. One hand it is committed to trying to ease off of the quantitative stimulus but doing it so gradually so as not to rattle a market that has been addicted to a world pumped up with printed money. The Fed commitment was sort of like the smoker saying they are probably going to quit smoking after they finish this last carton of cigarettes yet they are going to smoke less to drag out the day they have to go cold turkey. And who knows, by the time that rolls around if it feels like we can’t quite make that commitment, there is a possibility that we may have to buy another carton and try to quit again at a later date. The Fed does not want to take the quantitative crutch away from the market place yet it is hoping that perhaps they can continue the slowing pace of purchases and perhaps not spend all the money by the end of the year. They want to wean the market off of this easing and so they can quit before the market know that it has. The Fed says it, “anticipates that the full amount will be purchased by the end of October”, but then again if economic numbers continue to improve perhaps they will not. In fact it is possible that those purchases will be pushed off into next year and may not happen at all. If the Fed fund futures are telling us right, we will see rates start going up maybe as early as February and for sure by April of 2010.

While the long term of the yield curve seemed to know that the low rate party is over, the short end vagueness in the Fed statement made the short end more murky. That also means more uncertainty in the dollar. There is no doubt that a reversal of quantitative easing is dollar bullish and oil bearish yet the lack of clarity and uncertain questions of when and if the easing would end left the dollar bears and oil bulls room for speculation. If the Fed said that QE would end in October, the story would be over but know the oil bulls have hope that perhaps the lack of commitment to a target date means that if you think economic data might get bad again the Fed may have to back off its withdrawal. The market may also believe that the Fed is not moving fast enough to remove the stimulus and that may feed into inflation. Oil is surging on just that as commodities and the dollar are going in an inflationary direction.

Keep up to date with all the latest breaking news on the Fox Business Network where you can see me every day. And if you are ready to trade call me at 800-935-6487 or email me at Pflynn@pfgbest.com. Call for intraday entry and exits! See all the services that PFGBest can offer you and to open your account. Metals, Forex, managed accounts you name it!

We’re short Sept crude from apprx 7150 - stop 7390

Stopped on short September heating oil from apprx 19700 at apprx 20000.

We’re short September RBOB from apprx 20750 - lower stop 20500!

Sell September natural gas from apprx 470 - stop 480.

Of course we know that whatever the Department of Energy shows the impact may be muted by the movements of the stocks and the dollar. Which leads us to the question of the day, if the economy is getting so much better than why is the dollar looking so darn bad? Is the market worried that a bounce in the economy will lead to more government spending? Are they worried about the prospect of inflation? Is it concerned that the global recovery will leave the US in a subservient position because of our mountain of debt? The truth is that the dollar is worried about all of these things and it should be but perhaps at this point it is worried too much. The Dollar should rebound and that in turn should cap oil. Today before the oil inventory report we should get some interesting data on the health of the economy. Factory orders could give us a bounce especially if they rise after the rash of strong manufacturing data seen throughout the globe. The ISM Services number could also garner some interest.

OF course many feel that if oil demand is going to be sustained the growth is going to have to come from China. China demand has been a major force behind this rally and the market is looking to China as the future of this oil market. How strong is China’s growth and has their recent purchases of oil just been to stick in a reserve somewhere? In Today’s Financial Times it is reported that China’s latest set of first-half GDP numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation. The FT says that China’s GDP totaled 376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics The FT says that All but seven of the regions reported GDP growth rates above the bureau’s first-half figure of 7.1 per cent. At the start of the year, Beijing set 8 per cent as China’s growth target for the year. The FT says that with the rest of the world looking to China as a beacon of expansion, the discrepancy is a reminder that statistics there are often unreliable and manipulated regularly by officials for personal and political purposes.

In recent years, provincial figures have suggested consistently the world’s third-largest economy is bigger than Beijing’s published estimate, but the discrepancy appears to have widened this year.

Even state-controlled media reports and editorials have in recent days raised questions over their accuracy.

So perhaps some of China’s recent ravenous commodity buying has more to do with demand than just stockpiling supplies away.

Despite that high global inventories and a dollar that we trhink is ripe for a comeback shuld cap oil rally. Still we have to respect oil stregth. If the stock market soars and the dollar falls we could see oil move through the highs for the year. If not it is possible that we will start the correction. We still feel that the next big move will be down as seasonal and demand factors at some point will start to weigh.

Maybe you should weigh in by emailing me at Pflynn@pfgbest.com or calling me at 800-935-6487 Se me today on the Fox Business Network .See all the services that PFGBest can offer you and to open your account. Metals, Forex, managed accounts you name it!

Sold Sept crude apprx 7150 - stop 7390.

Sold September heating oil 19000 - stop 19300.

Sold September RBOB from apprx 20750 - stop 20950.

Sell September natural gas from apprx 470 stop 480

The Dan Flynn Corn & Ethanol Report

Wednesday August 5th 2009

Good Morning !

The December Corn settled at 369 1/2 which was up
3 3/4 cents.The range was 370 to 363 3/4.
Volatility reigns.
Remember we are looking at yields.
We continue to watch the U.S Dollar and Stock Market.
Is it supply and demand or macro-economic numbers ?

On the Energy Front we have weekly inventory numbers
that should show builds in supply and a decrease in demand.
I expect a break in the complex unless the evil speculators
are totally out of this market.

How bout BIG GOVERNMENT !

Have a great trading day !

Open a trading account with Dan Flynn & PFGBest today!

Contact 1-800-935-6487 or 312-563-8093
e-mail dflynn@PFGBest.com

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Still today the market will have to face once again the realities of or current supply and the possibility that a surge in oil price may slow the economic recovery. The American Petroleum Institute weekly supply report comes out today and the Department of Energy report tomorrow. Bloomberg News survey says that U.S. crude-oil inventories probably increased as refineries reduced operating rates and imports arrived near the year’s high. Bloomberg points out that oil stockpiles climbed 5.2 million barrels in the week ended July 24, the biggest increase since April, the Energy Department reported last week. Crude-oil imports jumped 8.9 percent to 10 million barrels a day that week, the highest since January. This week they expect an increase of 1.05 million barrels. Gasoline inventories probably fell 1.7 million barrels according to the survey and distillates increased by 1.15 million barrels.

And oil bulls have other worries as well. Can a rebounding economy survive higher prices? The weak dollar may shield Europe from higher prices yet the US will feel a double whammy. The Financial Times reports that Fatih Birol of the International Energy Agency said the world economy cannot sustain any further rise in the oil price. Mr. Birol said that price higher than about $70 could dampen a world economic recovery. In fact Mr. Birol says that, “If we go one step further, if we see prices go much higher than that, we may see it slow down and strangle economic recovery.”

Well it looks like the debate over drilling for oil in the Gulf of Mexico has been decided! Cuba will let Russia drill. What? I know! That’s right. Reuter’s news reports that, “Russia and Cuba have signed contracts that ”set the bases” for Russian oil company Zarubezhneft to search for oil in Cuba’s part of the Gulf of Mexico”, Cuba’s state-run press said on Wednesday. In its online edition, Communist Party newspaper Granma said four oil-related contracts had been signed during a visit on Tuesday by Russian Deputy Prime Minister Igor Sechin to the island that was his country’s close ally during the Cold War. Granma, without providing details, said the oil pacts between Zarubezhneft and state-owned Cuba Petroleo, “set the bases for work in (Cuba’s) exclusive economic zone in the gulf.” Reuters’ says also that Cuba has said it may have 20 billion barrels of oil reserves in its offshore fields, but only one test well has been drilled. Nancy Pelosi is going to be not pleased when she hears about this. Now the next question is whether or not the Fed will care!

And then you have OPEC. You all remember OPEC don’t you? Bloomberg News says that the Organization of Petroleum Exporting Countries increased oil output for a fourth straight month in July, reducing compliance with quotas as some members took advantage of rising prices. A Bloomberg News survey showed that OPEC oil output averaged 28.39 million barrels a day last month, up 45,000 from June, according to the survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 26.035 million barrels a day, 1.19 million more than their target.

Markets are rocking! Keep up with them by watching me each and every day on the Fox Business Network! Also call for the latest updates and profit objectives! You can reach me at 800-935-6487 or email me at pflynn@pfgbest.com to see all the services that PFGBest can offer you and to open your account. Metals, Forex, managed accounts you name it!

Stopped on short September crude from apprx 6650 at apprx 7170. Sell Sept crude at 7150 - stop 7390.

Sell September heating oil 19000 - stop 19300.

Sold September RBOB from apprx 20750 - stop 20950.

Stopped on short September natural gas from apprx 390 at apprx 400.

Oil prices got Shanghaied as an initial public offering in China sent global stock markets and oil on another run.In China’s first public offering since June, Sichuan Expressway rose 203 percent from its initial offering price according to Bloomberg News.

Because oil and the petroleum sector are more focused on the possibility of a quick global recovery than current high supply and weak demand, oil will be totally driven by the movements on the stock market side. Oil tends to ignore ample supply of crude, even more so because the thinking is that a recovery in demand from China will eat away at the global oil supply.

In fact, in a small way, that may already be happening. My buddy Rafield at Platts points out that over the past three months, US commercial crude stocks have declined a cumulative 32.57 million barrels to 342.688 million barrels, which she says is not a low level of inventories by any historical standard. At 342.688 million barrels, US commercial crude stocks were still 22.658 million barrels above the five-year average and 47.358 million barrels above year-ago levels. But Linda says the surplus against the five-year average is at its lowest level for this year, having been eroded by about 50%. So it seems in a small way inventories are starting to change direction as demand and cutbacks in OPEC production start to take its toll.

Still the oil market was lifted by the promise of stocks yet in the short term, oil should hit a top, reverse course and then resume the uptrend. If the economy gets better or worse the likelihood for a correction is rising. We are thinking we are in a blow off top phase. You do not want to stand in front of the market yet it may be time to put on your bearish option strategies.

Driving markets back to the dark ages or at least the dark markets! Have you been following the UNG Saga? The SEC has been dragging its heels on approving more shares forcing the fund to explore less transparent ways to hedge the fund. Now this week the CFTC is holding hearings on potentially limiting natural gas futures trades. Yet will the impact of position limits just reduce transparency and foster more trading in off exchange transactions? On Friday Bloomberg news reported that United States Natural Gas Fund, the world’s largest fund in the commodity, has changed its investment strategy, buying a $250 million bilateral swap that isn’t subject to regulatory position limits. It’s the first time the fund has used an off-market trade to mimic price changes in the fuel!

UNG fund has grown 11- fold since the start of the year to 347.4 million shares before it ran out of new shares on July 7. It is awaiting permission from the Securities and Exchange Commission to sell 1 billion more. John Hyland, the fund’s chief investment officer, told Bloomberg that, “We have worked under these assumptions for three and half years, since we introduced the first fund in oil, that if the funds reached a certain size, they would, for a variety of reasons, including regulatory concerns, have to start to make use of alternatives to the futures. These total return bilateral swaps were the most obvious alternative.”

In other words the law of unintended consequences of over regulation is already happening. As The CFTC and SEC react to emotional ramblings of the uniformed in Washington. The SEC and CFTC may try to reign in what they call over speculation but may just push it to dark markets. Avoid the darkness! Demand common sense from Washington before they do more damage to the average American.

Now how abut some good news! The price of gasoline fell about 7 cents a gallon during the past two weeks! So says the goddess of gasoline Trilby Lundberg who reports that gas prices are down to $2.49 for a gallon of regular unleaded. But Lundberg warns that it appears the rate of decline is slowing. Those darn creeping crude prices are the culprit.

Energies are moving. Big moves are the order of the day! To get short term and day trade recommendations just call me at 800-935-487 or email me at pflynn@alaron.com and see me today and each day on the Fox Business Network! Also call me for the list of new services that PFG BEST can provide you! Whether it’s FOREX, managed accounts, let’s get your portfolio rocking! Sign up for my energy blast and call me for the latest updates. You can reach me at 800-935-6487 or email me at pflynn@alaron.com to open your account. Also check me out every day on the Fox Business Network.

Sell September crude at 7170 - stop 7270.

Sell September RBOB at 19600 - stop 19750.

Sell September heating oil at 18500 - stop 18600.

We’re short September natural gas from apprx 390 - stop 430.

Oil prices rise as demand decays. Despite impressive moves in precious and base metals oil seemed less than enthusiastic. The EIA reported that US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.8 million barrels from the previous week. That put them at 342.7 million barrels which is way above the average range for this year. That number is more bearish than the API number but what was strange was that according to the DOE the supplies in Cushing, Oklahoma did not budge. Kind of makes you wonder.

The DOE reported that motor gasoline inventories increased by 0.8 million barrels last week and are near the upper limit of the average range. Distillate fuel inventories increased by 1.2 million barrels and are above the upper boundary of the average range for this time of year.

The DOE also reported that for the fourth consecutive week, the U.S. average price for regular gasoline fell, dropping about seven cents to $2.46 per gallon. The national average price has tumbled a total of nearly 23 cents over those four weeks, to bring the price to $1.60 below last year. Prices fell in all regions of the country with the largest drops occurring in the Lower Atlantic area of the East Coast and in the Midwest. The price slipped seven cents on the East Coast to $2.47 per gallon. In the Midwest, the price fell about eight cents to $2.36 per gallon. The Gulf Coast continued to have the lowest price of any region with a price dip of six cents to $2.32 per gallon. For the second week in a row, the price change in the Rocky Mountains was the smallest of any region, slipping four cents to $2.52 per gallon. On the West Coast, the price dropped a nickel to $2.77 per gallon. In California, the average price fell five cents to $2.83 per gallon.

The DOE also said that diesel prices fell in all regions of the country, with the U.S. average price dropping about five cents to $2.50 per gallon. That price was $2.22 below a year ago. On the East Coast and Gulf Coast, the averages slipped five cents to $2.51 and $2.44 per gallon, respectively. The average price in the Midwest fell four cents to $2.47 per gallon. The Rocky Mountain region recorded the largest decrease, falling six cents to $2.56 per gallon. The price on the West Coast dropped a nickel to $2.60 per gallon. In California, the price dipped two cents to $2.70 per gallon.

The reason they are falling is poor demand. Demand growth just is not there. Over the last four weeks, motor gasoline demand has averaged nearly 9.2 million barrels per day, up by 0.7 percent from the same period last year. Distillate fuel demand has averaged about 3.3 million barrels per day over the last four weeks, down by 11.0 percent from the same period last year. Jet fuel demand is 13.9 percent lower over the last four weeks compared to the same four-week period last year.

Thanks for all the emails! Energy Report readers are the best! Sign up for my daily energy blast and call me for the latest updates. Just call me at 800-935-6487 or email me at pflynn@alaron.com to open your account. Also check me out every day on the Fox Business Network.

We’re short September crude from apprx 6660 - stop 6760!
We sold September RBOB at apprx 18000 - stop 18500!
We sold September heating oil at apprx 17450 - stop 17650!

We sold September natural gas at 390 - stop 430.

Why is this important to oil? Well mainly because the Fed has been the main driver of the price of oil. In the Journal, Ben Bernanke wrote in an editorial piece about his accommodative policies and the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.

Mr. Bernanke says that, “the exit strategy is closely tied to the management of the Federal Reserve balance sheet. When the Fed makes loans or acquires securities, the funds enter the banking system and ultimately appear in the reserve accounts held at the Fed by banks and other depository institutions. These reserve balances now total about $800 billion, much more than normal. And given the current economic conditions, banks have generally held their reserves as balances at the Fed. But as the economy recovers, banks should find more opportunities to lend out their reserves.”

That would produce faster growth in broad money (for example, M1 or M2) and easier credit conditions, which could ultimately result in inflationary pressures, unless we adopt countervailing policy measures. When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy. To some extent, reserves held by banks at the Fed will contract automatically, as improving financial conditions lead to reduced use of our short-term lending facilities, and ultimately to their wind down. Indeed, short-term credit extended by the Fed to financial institutions and other market participants has already fallen to less than $600 billion as of mid-July from about $1.5 trillion at the end of 2008. In addition, reserves could be reduced by about $100 billion to $200 billion each year over the next few years as securities held by the Fed mature or are prepaid. However, reserves likely would remain quite high for several years unless additional policies are undertaken.

Bernanke says that, “Even if our balance sheet stays large for a while, we have two broad means of tightening monetary policy at the appropriate time: paying interest on reserve balances and taking various actions that reduce the stock of reserves. We could use either of these approaches alone;

However, to ensure effectiveness, we likely would use both in combination. Congress granted us authority last fall to pay interest on balances held by banks at the Fed. Currently, we pay banks an interest rate of 0.25%. When the time comes to tighten policy, we can raise the rate paid on reserve balances as we increase our target for the federal funds rate. Banks generally will not lend funds in the money market at an interest rate lower than the rate they can earn risk-free at the Federal Reserve. Moreover, they should compete to borrow any funds that are offered in private markets at rates below the interest rate on reserve balances because, by so doing, they can earn a spread without risk. Thus the interest rate that the Fed pays should tend to put a floor under short-term market rates, including our policy target, the federal-funds rate. Raising the rate paid on reserve balances also discourages excessive growth in money or credit, because banks will not want to lend out their reserves at rates below what they can earn at the Fed.”

Now of course Ben’s Humphrey Hawkins testimony will be a bit less exciting. Obviously as the fed exits, whenever they do, we will see the dollar rise and oil fall. That will drive oil prices lower.

Are you Fed up with the Fed? Get even! Trade futures!! Just call me at 800-935-6487 or email me at pflynn@alaron.com to open your account. Also check me out every day on the Fox Business Network. Press should turn in to the Dow Jones Indexes Mid-Year Commodities Outlook that I will be speaking at today at the CME Group floor!

Sell September crude at 6660 - stop 6760.

Sell September RBOB at 18000 - stop 18500.

Sell September Heating oil at 17450 stop 17650

Sell September natural gas at 390 - stop 430.