The Phil Flynn Energy Report CORRECTION

The Energy Report for Wednesday, December 19, 2012

 

By Phil Flynn 888.264.5665

 

Volatility takes a holiday 

 

I’m dreaming of some crude movement, just like the moves we used to know! Where the options glisten and traders risking, see the premiums start to grow. I’m dreaming of some crude movement, with every option spread I write. May your trades be merry and right. And may all of your option trades go right.

 

Oil prices start to round off at the lower end of the trading range and start to make a decisive move higher just as crude option volatility hits a low for the year. Crude option volatility fell below 25% as oil sunk deep into complacency. Crude oil is well balanced and has priced in geopolitical risk scenarios when it comes to Iran, Syria and Egypt where there really has not been any earth shaking developments for some time. Yet when it comes to the oil market you had better beware of the sleeping lion because if it awakens we could see a major move. Of course in the nineties, oil slept for most of the decade with only a few exceptions.

 

Still as I have said, oil seems to be bottoming at the lower end of the range and then a move towards the mid-nineties would place it at the higher end of the range. So it may be a good time with the low volatility to put on bullish option strategies. Of course if we see the fiscal cliff talks break down then it is possible that we could break out on the lower end of that range. Not likely, but possible. With low volatility option traders could straddle the market with an upward bias.

 

Oil also should get a boost from the increased volume from the Seaway pipeline as they move more oil from Cushing, Oklahoma to the Gulf Coast. We also should get support from the Energy Information Agency report, especially if it comes out like last night’s American Petroleum Institute report. The API reported that crude oil supply fell by 4.1 million barrels. That drop came partly due to a drop in imports which fell by 429,000 barrels per day. Supply in Cushing, Oklahoma did rise slightly by 118,000 barrels.

 

Gasoline stocks continue to explode rising by 4.2 million barrels though distillates tighten even more, falling 1.9 million barrels. Below normal distillate stocks and falling temperatures should keep the heating oil on an upward trajectory.

Bad news for naughty boys and girls! The price of coal and the outlook for it is dismal according to the International Energy Administration yet it could still be the world’s number one energy source. In recent years getting coal was not such a bad deal as coal prices were soaring! Being naughty was kind of nice. Yet low prices means that coal’s share of the global energy mix will continue to rise, and by 2017 coal will come close to surpassing oil as the world’s top energy source, the International Energy Agency said today as it released its annual Medium-Term Coal Market Report . They say that although the growth rate of coal slows from the breakneck pace of the last decade, global coal consumption by 2017 stands at 4.32 billion tons of oil equivalent (btoe), versus around 4.40 btoe for oil, based on IEA medium-term projections. The IEA expects that coal demand will increase in every region of the world except in the United States, where coal is being pushed out by natural gas. So now the big question still is whether to be naughty or nice.

 

Speaking of naughty, the Chinese’s canceled some bean purchases from the US and started looking at Brazil with their improving their soybean production outlook. Of course the last time the Chinese’s canceled bean purchases they came back in and ordered even more at a later date.

 

Nat gas got a pop off from colder forecasts. We should see a 67 bcf withdrawal.

 

Ask Santa for Greek Bonds. Greek bonds were the best performing bond in the world and with an upgrade of their debt, traders wondered why hold gold and silver when I can get a great return with less risk. Standard & Poor's ratings upgraded Greece’s credit grade to a B-, the highest since June 2011, although the bonds are still at junk status. Yet the thought that indeed Greece is improving so the main safe haven reason to be long gold looks less attractive. Add to that a Plan B from speaker John Boehner and why stay long when stocks are flying and you can get better returns elsewhere. That is until of course we realize that the reason why stocks are flying is a Fed with a red hot printing press. 

  

Make sure you open your Price Futures account today and get a trial to my Daily Trade Levels! Just email me - Phil Flynn - at pflynn@pricegroup.com or call me at 888.264.5665. Open a Trading Account in 15 minutes! Apply online: https://newaccount.admis.com/?office=269  Here is the PDF version:http://www.pricegroup.com/ADMIS/ADMIS%20Account%20Application.pdf

 

  

Thanks,

Phil Flynn

 

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