Telling Tuesday Morning

April 15, 2008

283

Now it starts to get serious!

We have the oil crooks attempting a run over $113 (now Mexico has now shut 3 ports to cut off supply, an outage that replaces the pipelines that were down last week to constrict supply) we have finally exasperated Goldman Sachs Senior Energy Economist, Giovanni Serio, who said about oil prices at the World Oil Conference in Calgary yesterday: "This really looks like the plot to one of those action movies, in which the protagonist, no matter what you throw at him, no matter how badly injured he is, defies all laws of physics and won’t die." As he spoke, crude oil was rising 1.5 per cent to a record $111.76 US a barrel at the close of floor trading on the NYMEX. Prices are up 76 per cent from a year ago.

NYMEX trading for May delivery stops on the 22nd and, with just 6 sessions left, traders are feigning interest in 176M barrels of crude at $112 per barrel when, in fact, they don’t want any of them and will be relentlessly canceling the 176,000 delivery contracts and rolling them to the next, cheaper month:





May 2008	112.86	n/a	111.80	112.97	111.80	111.76	+1.10	176885	19155	4/15/2008 7:27:40 AM



June 2008	112.30	n/a	111.34	112.42	111.25	111.17	+1.13	339554	13567	4/15/2008 7:27:26 AM



July 2008	111.58	n/a	110.67	111.69	110.56	110.45	+1.13	98712	2560	4/15/2008 7:27:05 AM



Aug 2008	110.75	n/a	109.93	110.75	109.83	109.72	+1.03	38341	726	4/15/2008 7:27:00 AM



Sep 2008	110.10	n/a	n/a	110.13	109.25	109.06	+1.04	55301	210	4/15/2008 7:27:00 AM



Oct 2008	108.77	n/a	n/a	109.00	108.68	108.46	+0.31	44743	231	4/15/2008 7:26:00 AM



Nov 2008	n/a	n/a	n/a	n/a	n/a	107.91	0	23317	108	4/15/2008 7:26:00 AM



Dec 2008	108.50	n/a	n/a	108.50	107.50	107.39	+1.11	196357	958	4/15/2008 7:26:00 AM



Jan 2009	107.20	n/a	n/a	107.20	107.20	106.84	+0.36	26653	66	4/15/2008 6:35:00 AM

This "open interest" on the NYMEX of roughly 600M barrels in the three front months is pushing credibility to the max as the delivery facility at Cushing, OK can only handle 42M barrels a month even if the traders did actually want the crude they are "ordering." Should there be an actual crisis and delivery be demanded, a "force majeure" would be called, canceling all contracts so there is no real profit to be made in speculating on oil delivery other than the $1Bn a day being paid by the American people who are overcharged for the oil they consume based on this shell game.

[Tired] Speculators are speculating that oil will go higher and you know they need a push when they recycle the old "peak oil" stories, this time it’s Russian production that is "slumping" on page one of the WSJ. Note the chart they use that shows a flatline at 10Mbd is now considered a peak, just like the flatline at 6Mbd was the case for peak oil back in the late 90’s. Still investors fall for this BS every time even though PBR just announced that they found a brand new 30Bn field yesterday, that would be another 2Mbd added to the world supply for 4 years.

We discussed last night how the dollar can’t get off the mats, despite the urging of the G7 and you simply can’t have it all – you can’t have a dead dollar based on a slowing US economy along with record oil prices based on record global demand along with record food prices as Billions of barrels of oil are being replaced by food. At some point in the chain, the investing premise breaks down but when, I don’t know…

Of course the rising energy and food costs are sending the PPI soaring, with a 1.1% increase in March alone – That’s a 13,2% annual rate folks! This is double the rate that economists expected and was led by a 2.9% rise in energy prices as oil averaged $104 in March vs. $96 in February. So far April is up in the $108 range but maybe we can top 3% this month if we all go out and do a little extra driving!

Asian markets stopped dropping (other than the Shanghai, which put in a 52-week low) with the Hang Seng and Nikkie regaining about half a point and China’s ICBC said they will avoid buying US assets as OUR market looks scary to a bank who’s market is off 40% for the year. Japan issued a statement also pledging support for G7 action to stabilize the markets.

Europe is up about a point ahead of our open but it’s a commodity rally that I’m not thrilled with. British retailer Tesco had a 12% gain in income, which is a nice market booster over there but overall retail sales are still weak. The Euro continues to remain stubborn against the dollar as French inflation came in at 3.2%, which is too hot for the EU and will lead to more tightening.

Our futures are heading higher as JNJ came in well and the NY Manufacturing Index is showing signs of improvement (low expectations). We have a merger of DAL and NWA which should lead to a merger of CAL and UAUA, which will leave the US with just 2 major airlines – just one step away from monopoly! The new DAL/NWA would have $35Bn in revenue, 800 planes and 75,000 employees. Oops, make that 65,000. No? Maybe 60,000? 55,0000???

Not surprisingly, labor unions are opposed. Robert Roach of the IAM (12,500 machinists) says: "The deal is not in the best interest of passengers, employees or the communities these airlines currently serve. We will do everything legally possible to oppose any merger that threatens our members’ jobs, labor contracts, pensions, seniority and their right to union representation."

We have INTC tonight but things are looking pretty good this morning and we’ll just have to grin and bear it on the commodity rally until someone does something other than talk up the dollar this week. After Intel we hear from IBM, KO, JPM and EBAY tomorrow with MER, PFE and GOOG keeping things interesting on Thursday and Friday, along with Google’s conference call, we get earnings from C AND it’s options expiration day!