Crude Oil

It would be difficult to imagine a market that captures more headlines or attention lately than crude oil and its derivatives. Between the rising population in booming economies like China and India and the increase in political tensions within oil producing nations, crude oil has been an unstoppable rising price force for what feels like forever. There is an inherent danger in calling a top in a market with historic high prices, but here at the Supreme Council we feel that there are a few factors that may keep a lid on rising prices at least in the short term. The latest monthly report from the IEA pegged global oil demand from developed nations at a lower consumption level than previously forecast. OPEC has also cut its global oil demand forecast from expectations of 86.97 million barrels to 86.95 million. The cartel has noted that it expects transport fuel demand to weaken through the second quarter and North American demand to remain flat, even through the summer driving season.

Chinese imports were reported as strong with large quantities of gasoline and fuel destined for the Asian country in April. Bullish as this might have been in a normal year, it is more likely that this Olympic host is looking to stockpile as much as possible ahead of the special event. Halting exports from the largest oil company – PetroChina - and importing extra diesel will help the global sporting venue host avoid any embarrassment that would accompany a lack of fuel. Finally, the passage through Congress of a bill to support the cessation of shipments to the Strategic Petroleum Reserve, if enacted, could shake some bulls loose. With two months worth of fuel held for emergency purposes, the notion is that for the time being the government should hold off on adding more and the approximately 70,000 barrels of oil per day not being placed in stasis should help at least in a small way to keep prices from soaring.

Swiss Franc

A dampened risk appetite had lately given strength to the Swiss currency as investors unwound their carry trade positions. As a currency with a low associated interest rate, the Swiss Franc normally draws investors who use it for loans to invest in countries with higher interest rates. Stock market gains and recent optimism have brought the carry trade back and set up a good opportunity to initiate a short Franc position. After all, a number of countries in Europe have experienced extreme inflation and economic concern and that fundamental shift might augment the number of shorts in this market. A recent report also shows Swiss consumer confidence falling more than forecast in April which can fan the flames of concern for the future growth of a country. Slowdown and cutbacks in spending between the Swiss and their major trading partners can also help maintain selling pressure amid soaring food and fuel prices. The labor market has held up well through February but it will be interesting to see if it can maintain strength in the current climate. Like other countries in the global community, Switzerland does not benefit from a highly priced currency – a detriment to exports – and that leads us to believe that any gains in the Swiss Franc will be pared back and that makes this a great new addition to our short positions.