The Energy Report for Friday, March 4, 2011


All we are saying Is give Hugo a chance.


All we are saying is give Hugo a chance. The market seemed a bit calmed on reports that the Chavez peace plan was being taken seriously. Seriously? Well perhaps by the Arab league and a few naïve folks that really believe that Gadhafi can be treated like a legitimate leader which he is not if you listen to President Obama. The President said, "Colonel Gadhafi needs to step down from power and leave. That is good for his country. That is good for his people." The President also said, "Violence that they perpetrate against innocent civilians will be monitored, and they will be held accountable for," said Obama. "They should know history is moving against Colonel Gadhafi." History is also moving against the oil bears. Not only is oil moving higher because of the significant risk to supply but also due to solid evidence that the economy continues to improve. Jobless claims hit a 2 year low, manufacturing is humming, and things are looking up if it went for this darn oil market. Just as the economy is starting to show significant momentum, the oil price puts things on edge. Not only can the high price of oil zap confidence, the inflationary aspects of the rising price could deal a major blow to central banks trying to cajole the economy back into growth. We already know that inflation is the fear of Jean Claude Trichet that moved markets with comments that the ECB's next move may indeed be a rate increase. The comment enhanced the dynamic that the ECB will raise rates before the Federal Reserve, sending the Euro to a 4 month high against the Euro. This seemed to bring down the Brent crude as the prospects of higher rates in Europe would reduce their oil demand. The WTI in turn gained as a more accommodative Fed would increase US demand in comparison. The Trichet comments also led to profit taking on gold and silver as it took out some inflation premium of the threat that at least one central bank is taking the threat of inflation seriously. Oil traders have to take the threat in the North Africa Seriously. To think that these problems are going to go away overnight is to be in denial. While I do not want to be an alarmist, there are years of frustration in the region that is starting to reveal itself. Every country in the region is at risk to one degree or the other. The market will be keenly watching developments in Saudi Arabia, the world's largest oil producer where dissidents are calling for days of rage. Treasury secretary Tim Geithner says that the US can release oil reserves yet Russia at this point is sending a different message. Dow Jones reports that, "Russia won't increase oil production to prevent further price increases due to the crisis in Libya, German magazine WirtschaftsWoche reports in a prerelease Friday, citing Russian Energy Minister Sergei Shmatko. "The fact that prices are rising is due to concerns over possible shortages but this is only a short-term impression," the report quotes Shmatko as saying that there is a need to "remain calm." Easy for him to say! Just yesterday I was singing the praises of directional drilling and fracturing and how this new technology has led us to the highest oil production in this country in years. Yesterday Reuters News reported, "the U.S. government is reviewing waste water practices of natural gas drillers after reports that radioactive water was ending up in public waterways, Interior Secretary Ken Salazar said on Thursday. Salazar, asked at a House of Representatives committee hearing about reports that radioactive wastewater produced from the drilling practice known as hydraulic fracturing may be ending up in waterways, confirmed that his department is looking into the matter. Interior is working with the Environmental Protection Agency to examine water quality issues related to waste and hydraulic fracturing, Deputy Interior Secretary David Hayes explained at the hearing of the House Natural Resources committee. "We are looking to make sure operators on public lands are not using hydraulic fracturing in way that is harmful to environment," Hayes said. Fracking injects a mixture of water, sand and chemicals into rock formations at high pressure to force out oil and natural gas. The spread of the technique to new areas has prompted a backlash from homeowners near shale gas developments who complain the practice has contaminated drinking water. Last year, Interior said it was considering developing new rules that would require companies to reveal the chemicals used in hydraulic fracturing on federal lands. Expressing support for natural gas development, Salazar said the department was still involved in discussions with the drilling industry and other stakeholders regarding the disclosure issue. "We're going to have a huge backlash...from the American public if we continue to inject chemicals and fluids into ground without people knowing what it is that's being injected," Salazar told reporters after the meeting. I think he will get a bigger backlash when gas prices hit $5.00 a gallon. It is Friday! The Fox Business Network will be following the developments in North Africa and the Middle East all day and all weekend. Tune in! Also get tuned into a trial of my daily buy and sell points on all the major commodities as well as selected option plays! Just call me at 800-935-6487 or email me at pflynn@pfgbest.com.