CRUD-DAMENTALS
While respecting the market's resilience, given the fundamentals, a measure of skepticism must be expected, as well. With oil stocks rebuilding and the risk of a US recession high, justifying oil prices up near $100, unless a more direct threat to supplies is seen, is difficult. Crude oil stocks are into the seasonal rebuilding process. Inventories have gained 22.4MM bbls over the last six weeks and should show continual replenishment in successive reports. Refinery operations are at the lowest rate since June 2006. While rising oil stocks should certainly begin to ease concerns over supply, a weak economy keeps the demand outlook for energy soft. After seeing a major slump in regional manufacturing last week, the economic risks are certainly skewed to the downside and another bleak reading in today's existing home sales data could certainly be a limiting factor for the market. Both daily technical indicators and the Feb 19th Commitments report with options shows the market to be over extended. However, a surge in fund investment into a broad range of commodities including energies has been a key factor supporting crude oil and may temporarily lift the market beyond prices justified by the fundamentals. But, attempts to sustain a move over $100 in crude oil have so far failed, and that may continue to be the case given the current situation of rising supplies and sagging demand. A tribunal in Nigeria will rule tomorrow on the validity of the recent presidential elections. Yar'Adua and his People's Democratic Party won a landslide victory in last April's general elections but neutral observers accused the ruling party of widespread vote-rigging. It will be watched closely across Africa, where elections regularly draw accusations of cheating and the aggrieved often take protests to the streets -- as they have in Kenya -- rather than to court as the Nigerian challengers have done. Of course, caught up in this will be the secirity of Nigeria's oil flow.
J. Kilduff
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