Schork Oil Outlook: Big Oil Beats Windmills

It was a week in which we sawFed Chairman Bernanke on 60 Minutes and President Obama on The Tonight Show.

In the first ever appearance of an acting President on late night television, Obama explained how the economy and stocks will recover from economic indicators not seen since Monica Lewinsky was making headlines.

Last Sunday, Bernanke shared his hopeful prognosis for the economy and what has and can be done. He furthered his optimistic outlook by announcing Wednesday the Fed’s decision to buy up to $300 Billion Long Term Bonds.

Does the appearance of these leaders in these mediums demean their respective positions? Guess not. The market loved it. Stocks and commodities staged a solid rally and finished the week with decent gains. With the “success” of last week’s decline stoppage, expect to see more of the Obama and Bernanke Show.

A revue filled with theatrics and illusions that may leave us all broke, but at least erstwhile we will all be entertained.

Powershares DB Crude (DXO): This double long did not get the news it wanted out of Vienna this week. No matter. DXO bulls must be looking to the heavens because they were saved by a miracle in that the market did not tank to new lows on OPEC’s decision to leave oil output unchanged. WTI’s move to $52 only took DXO to $3. That is troubling considering the last time WTI was at this level, DXO was closer to $4. But, the “oil gods” appear to be working their magic. In addition to the positive week in the US, China has put in motion plans to substantially increase their petroleum reserve over the coming years, adding a long term underlying bullish factor.


ENERGY Select Sector (XLE): Buying XLE is comparable to placing a bet against green energy. Exxon-Mobil stated in their 25-year outlook that by the year 2030, renewable energy (solar, wind, biofuels) will only make up 2% of energy output. At the current time, they see no viable option to invest in. Obama’s plan to tax the heck out of them will most likely further defer their investment in alternative energy research.

Here at The Schork Reportwe take note that the current administration has no qualms about maintaining the previous administration’s tax on importing fuels that are allegedly good for the environment. XOM is putting their money where their mouth is by investing in foreign oil and gas projects. And at the current time with the economic outlook a little rosier and global energy demand turning the corner, we see big oil winning the battle against the windmills. We have changed our bias to bullish.

NATURAL GAS: Henry Hub gas futures on the NYMEX meandered higher yesterday, but this bullish momentum could hardly be described as awe inspiring. Be that as it may, the contract did close higher for a third consecutive session. That had not occurred since early February. In fact, this is only the third occurrence this winter when the bulls have been able to string three straight winning sessions together in the April contract. That, in and of itself, tells us all we need to know about how bearish this season’s fundamentals have been.

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Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.