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It’s All About Oil Prices

April 13, 2011 – 6:35 pm

This morning the market is buoyed by an upbeat retail sales report for March that showed the ninth straight month of sales growth. It was up .4%. Of course if you adjust for the rise in gasoline prices it would be up only a fraction. On the other hand if you removed gasoline and car sales completely and compare the month over month increase it was up .8%. Doing that is an attempt to see if consumers are buying a broad base of goods or are they starting to close up their wallets. It appears they are still buying.

Oil fell sharply yesterday. The price in recent weeks has risen largely on speculation rather anything to do with fundamental demand. An article in the Financial Times this morning stated that the Saudis did not increase production in March to help make up for the Libyan short fall. What was interesting about the article is that the Saudis said that the demand was not there. The reduction in demand from Japan made them ship oil elsewhere. They also said they were having a hard time replacing the same quality of oil that Libya produces. Of course part of the answer could be that Saudi Arabia likes high prices and since the world is oversupplied they do not want to increase that supply. The IEA data also suggests that refiners outside of OPEC did not or could not take more crude to process. The truth is in there somewhere.

It would be nice if oil prices fell taking pressure off the consumer. The consumer is the one to watch. If he continues to spend on products other than higher gasoline costs the economy will continue to improve.

Good Trading
Steve Peasley

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