How do you stop China from consuming

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How do you stop China from consuming and make the commodity world go round? Oil prices continued their retreat even in the face of a Department of Energy supply report that looked a lot less bearish than the American Petroleum Institute version. In the face of some strong housing and durable goods data you really have to wonder. Why did crude not rally on news that just a few weeks ago would have caused a solid upward move? Was it possible that some traders thought that perhaps the API data seemed more credible that the DOE data? Well I think that is part of it. I mean you when you see crude oil imports rise by 1.1 million barrels a day and refinery runs up slightly and still we have weak demand, it makes you wonder where all those imports ended up.

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.

The Energy Report for Wednesday, August 26, 2009

Come all ye young fellows that follow the sea, to my way haye, blow the oil down, and pray pay attention and listen to me, give me some time to blow the oil down. Those deep water tankers just in from the sea, to my way haye, blow the oil down, if you give me some grog, I’ll sing you a song, give me some time to blow the oil down.

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.