ENERGY MARKET NEWSLETTER

In light of recent developments in the markets I closely monitor, I am moving my target on Crude Oil to $135/bbl. My only reservation is that this number might be a little too conservative. And NO, this has absolutely nothing to do with Goldman Sachs issuing a target of $200/bbl. The following should depress you.

First and foremost, Crude Oil is making new highs in large part because of supply disruptions in a very tight market. This last week alone we got some new Geo-political turmoil, labor strikes, pipelines blowing up; the stuff we typically expect to see in front of the summer driving season. The world must have been too quiet for a while.

Second, a weak dollar is being combined with "Bullish" demand indicators here in the US. We all know where I stand on the US Dollar and the FED's monetary policy. But what I find fascinating is that as the powers-that-be continue to weaken the US Dollar, they are engaged in a never ending battle to talk-up the economy. And as they talk up the economy they are propping up the demand for energy here in the US. Do you really think that there were only 20,000 jobs lost last month?

Third, but no less important, is the "Help" we get from our elected officials. I don't know if you noticed, but the solutions put forth by the three presidential hopefuls will accomplish nothing right now and might actually make things worse long term. Keep in mind that there are two things that can begin to solve some of our energy problems, but you will never hear them talk about them. Those two things would be to open up domestic oil drilling and the other would be to increase refinery capacity in the US, yet we probably will not see either of these things in our lifetimes.

However, I do think the most comical idea they are "talking about" is eliminating the tax on gasoline during the summer driving season. The reason it is so funny is because the election is not until November.

Finally, and probably the most scary of all, is that Crude Oil is making new highs at $123+ even though the US Dollar is not making new lows, yet. I really hate to say this, but if the US Dollar breaks down I think that Crude Oil is going to run, not walk, through $125/bbl. Don't believe me? Look at the following chart:

Here you can see the Crude Oil market (in Green) moving higher from February through today. And at the same time you can see the US Dollar Index (in Blue) moving lower from February through the middle of April and then move higher off of that low in April. It is at this point in mid April that the Crude Oil market broke its relationship with the US Dollar and became over powered by a supply and demand imbalance. What I fear most is that any weakness in the US Dollar from this point forward will shoot Crude Oil prices up another $10/bbl, or more...

Now classmates, put on your tin foil hats and try to follow along:

Goldman Sachs issued a research report indicating that they think Crude Oil is going to $200/bbl at some point in the "distant" future. Goldman Sachs also, as you may recall, hyped the virtues of Mortgage Backed Securities and Sub-Prime Collateralized Debt Obligations that they were in the process of selling short. I would be very hesitant to buy any $150-$200 Crude Oil call options, especially if Goldman Sachs is the one selling them to you!

New highs in Crude Oil bring new highs in Gasoline. This is pretty much a no brainer.

Please call me to discuss any questions you may have.

1-800-284-1065 or markp@iepstein.com.

Good Luck and Good Trading,

All charts provided on this report are courtesy of OST IraCharts. For a 30 day Free Trial of the OST IraChart software, contact me directly at 800-284-1065, or email me at markp@iepstein.com .

The Seasonal Chart was provided by Moore Research Center http://www.mrci.com/

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