The Energy Report

Phil Flynn

http://www.firstenercastfinancial.co...

May 13, 2009

Give me those old time fundamentals. Give me those old time fundamentals, give me those old time fundamentals they are good enough for me. Oil continues its surge, defying old time fundamentals as the market focuses on a new wave of fundamentals.

Old time fundamentalists are aghast at what has been happening and some are questioning the status quo of what has been the bedrock of fundamental beliefs. It is not just supply and demand but the relative strengths and weaknesses of the stock market, the dollar and the impact of government policies on inflation. Yet today we may get back to basics as the focus will be on the American Petroleum Institute and the Department of Energy's supply reports and the potential for continued demand growth from China and those good old comfortable old time fundamentals. Halleluiah!!

Oil prices got a boost on some of those old time fundamentals when the API reported inventory drops across the board. The API reported that US crude supplies fell by a much more than expected 3.13 million barrels after a big drop in imports. It seems that excess oil supply might be headed to Europe and other far off places to fetch better prices. This is also evidence of OPEC production cuts showing up in the numbers. The API also reported that distillate supply fell by 1.76 million barrels and gasoline supply by a surprising 2.01 million barrels.

Another one of those places some of that oil could have gone is China. According to Dow Jones Newswires China processed 29.43 million metric tons of crude oil in April, equivalent to an average of 7.19 million barrels. Dow says that the refinery runs data will bolster signs that China's oil demand is recovering. April crude runs exceeded the previous month's level of 6.95 million barrels a day. Refiners raised crude runs in April in part to take advantage of a domestic fuel price hike in March, and to build up inventories of gasoline and diesel after drawing down stocks since the start of this year. So as far as China goes, this means they recorded their second highest monthly gasoline output volume in at least three years in April at 5.76 million metric tons. April's gasoline output, up 19.6% on the year, is only lower than March's 6.29 million tons after Chinese refiners had been asked to produce more gasoline at the expense of diesel. Diesel output reached 10.63 million tons in April, 0.7% higher than a year earlier but lower than March's 10.78 million tons. China is also reportedly talking about importing a lot of gasoline.

Dow Jones says that China may raise gasoline imports this month, yet all is not rosy and bullish in China. Chinese exports plunged 22.6% from a year ago. China industrial output number was less than expected and some fear that if the US economy does not pick up then China’s commodity buying spree may come to an end. OPEC is lowering their demand forecast and worried that a outbreak of swine flu in Asia could further undermine its oil products market, following the example of North America.

Right Now those old time fundamentals are fundamental. If the EIA follows the API showing bigger than expected draw downs, the bears may get some religion. In the mean time make sure you are watching me every day on the Fox Business Network! And make sure you are getting the daily Energy Report! Just call for intraday trade adjustments and option recommendations. Call me at 800-935-6487 or email me at pflynn@alaron.com to open your account!