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Schork Oil Outlook: The Only Fundamentally Rational Market Is Natural Gas

Move along…Nothing to see here people:

Market bulls are behaving like a traffic cop after a horrific roadside accident. They are doing their best (and succeeding) at ushering the oncoming traffic along…just keep moving folks, nothing to see here. Of course, said roadside accident is the global economy. In this vein, we are just being ushered along…rising unemployment? Pay no attention. Withering industrial production? Nothing to see here people. Spreading swine flu pandemic, Chrysler bankruptcy, etc. etc. etc…. Bottom line, the economy is still sputtering, coughing, wheezing towards the finish line as the White House looks to extend its control of capital, i.e. extends its control of the economy, i.e. tack towards socialism. The only fundamentally rational market is natural gas, which dropped to new seven year lows last week.

Last week looked promising for DTO as news of the “swine” flu created panic among investors in the energy complex. DTO gained over $13 a share as crude lost $1.63 a contract in the first two trading days of last week. Yet, like clockwork, we saw utter disregard for another huge build in inventories. As crude made up its mind to go higher, DTO took a header. We are still within the $45 to $55 range for now, but NYMEX crude is nearing the higher end of that range. As we have discussed in the ETF weekly report, $60 a barrel seems to be more realistic than $40 a barrel. DTO on the other hand, may very well see $150 a share next week.

Exxon reported last Thursday that their first quarter net income fell to $4.55 billion versus $10.89 billion in the period a year ago. The company said in a statement “in spite of dramatic changes to the global economic environment, Exxon-Mobil is maintaining its long term focus and disciplined approach to capital investment.” The earnings will stop the wailing of the Obama Administration and his “greenies” for now. Enjoy the peace while you can because the crying will not stop forever. In the meantime, XLE spent most of last week above the 100-day Moving Average (MA) and will now try and quietly sneak to the 200-day MA.

KOL marked Obama’s first hundred days by reaching the highest point since he has taken the oath. Clearly, the 40% run since early March, which has “smoked” the S&P, Dow, and Nasdaq rise during the same time period, is a telltale sign who won the battle in the coal pit. Last week’s move above $18 could spark a run to the October gap at $24 and put the icing on the cake. But KOL components are not rubbing dirt in the face of their foes. They are pledging significant funds to the development of clean coal technology. Why not? A week after the auto industry faces bankruptcies, coal miners can start to breathe a little easier.

It looks like gold bugs are not immune to swine flu either. If the threat of a global pandemic cannot get this market going, what can? GLD has been stuckin the $70-$100 trading range since September 2007. Year-to-date, we have gone nowhere. Gold is expensive relative to other commodities, particularly grains and oil. Yes gold bugs, we are within striking distance of a historic move. However, the 200-day MA for GLD lies at the double bottom made in April. And if we see a solid close below this line, the gold bugs’ panic will spread faster than a pandemic.

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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.