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Schork Oil Outlook: Clean And Green Comes At A Price

China, the largest contributor to greenhouse gas emissions in the world, has been taking large steps to be greener. However, they now recognize that they may have more pressing issues to address.

In the latest draft of China’s stimulus plan, projected investment in clean energy was slashed by 40%. According to Gael de Barmom, president of Natixis Private Equity Asia, “The crisis may postpone initiatives to push clean technology as the government wants to first promote economic stability and keep jobs.”

Translation…clean and green comes at a healthy price. A Spanish study cited in the April 27 issue of ETF Market Intelligence, shows that for every green job that is created with government funding, 2.2 regular jobs are lost and that only 1 in 10 jobs wind up being permanent. We all want to live in a “greener” world, but the question is whether we can achieve this goal concurrent to digging ourselves out of the current recession. It’s easy to promote being green when oil prices are skyrocketing – success is gong to lie in a global long-term commitment, independent of market volatility.

Last Friday’s plunge in spot NYMEX crude was DTO’s saving grace and led to a weekly gain of $16.04 or almost 13%. On the other hand, the June crude contract lost $2.29 or about 4% of its value. Last Wednesday’s DOE reported a decline (yes, you read that right) of 4.6 million barrels in net commercial stocks. This was the first drawdown in inventories since the end of April (27th) and one of only three for the year so far. The adage, “buy the rumor, sell the fact,” held true and DTO shot up almost $6 a share. As we said before, DTO is along for the ride and a push above $60 a barrel should cause a dip below $125 for DTO; on the flipside, if crude fails to hold the $55 support level, DTO should trend higher through $150 per share.

Last week’s pullback in both NYMEX natural gas and UNG was inline with the rest of the global markets. Natural gas lost about 21 cents or 4.9% from its contract value and UNG dropped 92 cents or 5.4% in share price. As analyzed further in the weekly ETF Market Intelligence report, investors have been piling into UNG at a feverish pace causing some analysts to speculate that UNG itself was the driving force behind the recent lift in nat gas prices. The initial claim that UNG held a massive 80% of June open interest was in reality proven to be only 25%. As the roll from June to July began last Wednesday, we saw little effect on the price spread. In another vein, the call option interest in UNG (call buyers=bullish) shot up last Thursday for October expiration. This indicates a longer term bullish bias for UNG and its underlying commodity.

Last week, both the EIA and IEA decreased their world oil demand estimates for 2009. The IEA based their outlook on, “the weaker-than-expected preliminary data in the regions such as the U.S., China, and Russia”. On a daily basis, the news is smeared with bad and sometimes worsening economic data. In spite of this, global markets dialed the future into their time machines and left all the bad news behind. XLE finished its two month journey at the 200-day Moving Average. Defensive measures should be taken as failure to lift through current levels could quickly take XLE holders back from the future, i.e., back to March prices.

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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.