Focus on Fuels 2-11-08
Submitted by DTN Ethanol Center
Energy Traders Face Dangerous Markets
By Gary Wilhelmi
DTN’s Man on the Floor of the CBOT, CME
The energy markets had a trauma-center atmosphere when crude oil near $100 per barrel brought fears of a damaging rate of inflation, which threatened the core of the global economy. That has now reversed as crude dropped back under $90, signaling an expanded chance for recession.
Analyzing these energy and equity markets is like watching a control panel of instruments going crazy and setting off constant warnings. There are whistles and buzzers, lights flashing, horns going off and signs saying we have a code red emergency. It is interesting to sit up in the press box and comment on all these market gyrations, but it is extremely dangerous for the traders. When markets occasionally get out of control we analysts say the inmates have taken control of the asylum. But this is like “One Flew Over The Cuckoos Nest.” Just this past week crude fell back into the $80s, on the fundamental basis of plentiful supplies and deepening recessionary concerns, but with supply concerns surfacing in Venezuela and Nigeria, crude rallied about $6 up off its low.
Under the “fly in the ointment” heading comes a new concern for the development of ethanol sources due to the ripping out of rain forests and the fact that such activity actually creates more greenhouse gases adding to the global warming problems, be that forest in Brazil to plant sugar cane or trees clear cut in Indonesia to plant palm trees. The science of discovery of alternative fuel sources is indeed complicated and in this case contradictory. It is hard enough to find fuel sources that are financially feasible. Let alone raw materials that do more good than harm.
The 2008 auto show is in Chicago and it is always a most entertaining event. GM is the headliner this year, even with all their problems, as they roll out about eight ethanol-ready models. By the year 2012 GM estimates are that one-half of their new models will be ethanol-type hybrids. As I have pointed out, currently E-85 stations are few and far between, so many alterations need to be made to accommodate the new ethanol-ready cars in the net four years. Another model drawing interest is the new diesel. American consumers need to be convinced on diesel, as we all remember the last diesel fad turned out to be about as popular as the Edsel — loud, black-smoke-belching monstrosities that sounded like they were about to throw a rod. Detroit and other car makers have to come up with a quiet and clean machine. A complaint I am hearing is that the mileage is grossly exaggerated Yes there are challenges galore, but American ingenuity has responded well before and I bet this time we will rise to the challenge and regain a meaningful share of what is now a world market.
Correction: Last week I mentioned that West Texas Crude was near $100 per gallon — that should $100 per barrel.
Gary Wilhelmi can be reached at gary.wilhelmi@dtn.com
(CZ)
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