Ralph Shell @ 1:17 PM, Thursday February 24 2011
The turbulence spreading through out Africa and the Mid- East illustrates the vulnerability of the developed world which relies on that area for so much of it's energy. Theoretically the US recognized this threat when, in 1977, they made the Department of Energy, a cabinet position with the accompanying bureaucracy; their objective, making the US more energy independent. Unfortunately this is one more Washington agency that has lost its way, as it obstructs the development of US energy. Rather than becoming more independent, we are less, and find it necessary to spend $20B or more per month from countries that do not like us.
Off shore production in the Gulf of Mexico, so successful for many years, producing 2M barrels/day is now off limits to future development. Florida, currently suffering with 12% unemployment and big state deficits, is thought to have massive oil and gas fields off of the West Coast, but the politicians and DOE have refused to open this area to exploratory drilling. There are massive known reserves in Alaska but no drilling there for fear of harm to the pristine wilderness. No development of oil shale on federal land in the West, thanks to a provision stealthily inserted one night by then Senator Ken Salazar, and now Sec. of the Interior. Now Salazar, the DOE and the EPA are are studying to see if the successful horizontal drilling techniques employed in the Williston basin are harmful to the environment. Yes, and the near bankrupt state of California, has off shore oil fields but forget about developing there. What price per gallon $7, 8 or 10 will it take to stop the nonsense?
Currency traders contend that the USD is no longer the a safe haven, and considering some of the short sided US energy policies and the fiscal irresponsibility in Washington there is some merit to that argument. The SF and the yen have been mentioned as popular places to park some hot money. This week the open interest, futures only at the CME, in the SF has gone about 10%, almost 4k yesterday. Trading at .9255 versus the USD, this is a multi year low of the USD versus the CHF. Speculators have been sizable longs in the franc versus the USD.
The situation in the yen is confusing. In the latest COT report the large spec had made a massive flip to the short side of the yen, swapping positions with the commercial who went long. The small spec had already been short the yen, and added to that position. This week, with the yen anointed as a most favored safe haven destination, this has put the yen spec shorts on the defensive. The USD's high of 83.51 has versus the yen has given way to a sell off down to 81.61. Specs caught short the yen chose to liquidate yesterday, with the OI going down 5.6k contracts yesterday. The market acts like there is further liquidation today.
The most popular currency trade, according to how the specs are voting in the futures market, is short the USD. The yen had been the exception. Should the yen continue to strengthen as specs bail, we are going to be a buyer on a sell off to the 81 area. Use appropriate money manage stops and lets see if these markets get some new drivers next week.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.