Phil Flynn: The Great European Gold Rush

. One thing that the market now realizes is that oil in the high eighty area was and is unsustainable at this time. Now the question is how low can we go or will oil find happiness and comfort in the mid-seventy zone. We think that oil will eventually break lower as the dollar continues to gain and currency uncertainty keeps the market focus on over supply and the rate of improving demand. The truth is that even if demand improves dramatically it will take some time to work into our supply. The API said we added to that supply reporting that crude stocks increased by 362,000 barrels last week, they reported another big build in Cushing Oklahoma of 783,000 barrels. They also showed that distillate stocks increased by 94,000 barrels. Gas stocks fell by approximately 906,000 barrels perhaps reflecting better demand.

Barbara Powell at Bloomberg reported the MasterCard Spending Pulse report showed U.S. gasoline demand at the pump rose 1.4 percent last week from near a 10-week low as fuel consumption increased in six of seven geographic regions. Motorists bought an average 9.34 million barrels of motor fuel a day in the week ended May 7. Daily fuel use over the past four weeks averaged 9.31 million barrels a day, down 0.5 percent from a year earlier. The four-week average was below the previous year for the second straight week. Year-to-date, demand is up 1.3 percent from 2009 which may be the first sign of the pickup in demand as we head toward the long Memorial Day weekend but we’re looking to see if there is a sustained pickup in demand which we have not seen the last two years. We are still long term bears but despite the big drop, crude oil could see anther rebound unless today’s Energy Information Agency supply report breaks us again. Oil is a bit oversold and the bulls will try to make a stand. Still we feel the best way to trade it is by playing the wide daily ranges.

Phil can be reached at pflynn@pfgbest.com And make sure to watch him every day on the Fox Business Channel.

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