Ready to break or is it hit the brakes?
Can the oil bulls catch a break with the Senate Super Majority being broken? Well maybe they might have if it weren’t for the fact that China is hitting the brakes.
The election in Massachusetts gave oil bulls a thrill but news today out of China may change that bullish mood. The petroleum market reversed course yesterday as the market correctly predicted that Republican Scott Brown would pull off an upset victory in the Massachusetts special Senate campaign to fill Senator Ted Kennedy’s vacant seat.
The man who will block the Democrats super majority and vote against the universal health care bill sent healthcare stocks soaring helping inspire the Dow on to 115.78 point rally turning oil around on its coattails. Yet today we may see the oil market come back down to earth as reports out of China may once again zap that bullish momentum.
Just when the oil bulls thought they might catch a break, China put the squeeze on. Reuter’s News reported that the Chinese government has told several major Chinese banks to hit the brakes by making them increase their reserve requirement ratio by half a percentage point. Not only that they told these lending institutions to stop lending money for the rest of this month. Reuters News reports that lenders Citi Bank, ICBC and Everbright Bank were all informed by the authorities to cease lending in another sign that China is trying to stop that China bubble from expanding. This is the type of news that should leave big skid marks on the backs of the oil bulls. Or perhaps a better way to say it is that this news should strike fear in the heart of the oil bulls the same way last night’s election results should strike fear into the hearts of incumbent Democrats.
Adding to the bearish momentum is reports out of OPEC that they just cannot give up their cheating ways and what is more they admit it. OPEC compliance fell to 56%, from 58% in November.
Bad news in the refining business as Chevron reports they will lay off workers as demand for oil products continue to squeeze refining margins. They are going to restructure their refining end making it leaner and possibly selling or closing refineries.
We feel that the overall the oil market is headed down to the $40 a barrel handle over the next few months but at the same time you have to be careful and respect the wide daily trading ranges. Yesterday’s action was a perfect example of what I am talking about. Long term players can sell rallies and have a stop above $85 if you want to play for the larger move but why not look at the ranges as well.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.