Petroleum Market Updates

January 28, 2008

Several factors seem to be working in the energy market's favor. As perception swings wildly, a more optimistic view on the US economy is the flavor of the moment. Renewed optimism is gathering from news that a bailout for mortgage insurers is close to adoption, as is an economic stimulus package. While both may have at least temporarily improved the economic outlook and concomitant outlook for energy demand, what particular devil will emerge from the details of the stimulus package remains for the Senate to hammer out. Clearly, there will be some adherents to the idea that the government's actions, along with the Fed's rate cuts, will be enough to prevent the US economy from heading into a downward spiral. The stable weekly jobs statistics may be helpful in dispelling some concern. Additionally, worries over global demand may be eased by news that China's energy demand grew by 6.4% last month. Renewed enthusiasm even allowed for the mostly bearish inventory report to be ignored. Buyers may even be taking encouragement from the notion that OPEC is unlikely to officially raise output at next week's meeting. Russia plans to cut oil exports next month, which is also supportive. In the final analysis though, it is much too early to say that the economy is in the clear from concerns that appeared to be acute just a few days ago. The December jobs number and recent contractions in the housing market and various manufacturing readings suggest structural elements that will be infinitely more difficult to deal with than the short and intermediate causes that are being assigned causality for the last two optimistic sessions. The turnaround across-the-board is stark. Whether or not there was an intense over reaction to Societe Generale rogue portfolio liquidation is an open question. The market also remains in a technically weak condition, as well, with crude heating oil and RB all looking like they have traced out major tops.