Energy report: Greek bailout and Chinese lending saves oil bulls

Greece bail out helps bail out the oil bulls and heavy lending in China and a tightening global supply picture, gives oil bulls some new life. First, the Greece bail out is going to happen as the EU President says a deal has been struck but European delicacy seems to suggest that bailout is kind of a harsh term. They would prefer rescue or help. One reason is that technically speaking, a bailout is illegal. Politics UK reports that an EU bailout of Greece is illegal under the Maastricht treaty. Norman Lamont, the former chief secretary of the Treasury when Britain joined the European exchange rate mechanism in 1990, said the Maastricht treaty specifically ruled out bailouts out of concern that Italy would need help at some point. Well guess what, Italy may be next, or Spain or Ireland. After one bailout precedent the other PIIGS will be waiting at the trough.

You know when you are on the long car trip and the child ask the inevitable question “Are we there yet?” Well Ben Bernanke was asked the same question on interest rates and his response gave oil a quick, hard break when he said the Fed would raise the discount rate before long. Now think of this: if you are asked that question and one time you answer that we will be there in an extended period and then when asked again you say “before long”. Is there really any difference? Or sure, you are closer to your destination than the first time you were asked and” before long” sounds like you are closer but still “before long” depending on your point of view could still be a long time. So the next time your child asks you if you are there yet just say that you will be there in an extended period or before long.

Oil prices are trying to make sense out of economic data out of China overnight. The Chinese consumer price index was up 1.5% over a year ago which was much lower than the 3.5% that the market was looking for. Yet at the same time China’s producer prices came in higher than expected at 4.3% above year ago levels. Chinese banks went on a lending spree raising concerns that China’s economy could be overheating. MarketWatch reported that Chinese banks extended 1.39 trillion yuan ($203.5 billion) in loans in January, about the middle of a range expected in analysts' forecasts, according to Dow Jones Newswires reports of government data released Thursday. January's lending figure is more than three times the 379.8 billion yuan extended in December. Other data released Thursday showed China's money supply as measured by M2, China's broadest measure of money supply, was up 25.98% at the end of January from the year-earlier month, slightly higher than expectations of a 25.8% rise.

They probably used those loans to by some oil as global supplies are tightening, the International Energy Agency reported this morning that OECD oil stocks fell by 58.1 days of demand cover from 59.2. Floating storage fell to 86 million barrels of oil down from 96 million barrels.

Gut-check time! It is the 31st anniversary of the Iranian revolution. It is also the day that, according to Iran’s Supreme Leader Ayatollah Ali Khamenei, “the Iranian nation, with its unity and God's grace, will punch the arrogant Western powers on the 22nd of Bahman in a way that will leave them stunned." I think what he may do is amaze us with a magic trick. He will make some protestors disappear before our very eyes.

With a tightening global supply, a subdued Chinese CPI and a Greek bailout it seems that the oil bulls were bailed out once again. A close above $75.50 means the bulls should try to test near $80 but that test should be short lived. We still are calling for a move to the forties which will only be negated on a close above $85. Of course from the beginning I have said that this is not going to be a straight shot but a long term wavy downtrend with intermediate bull waves within in the move. For day traders and short term traders each day we have buy and sell levels based of what we believe will be that days expected range. Intermediate players may play for the move towards $80 but the entry and timing may be critical as you are fighting a major topping trend. Still the inability to follow through mainly because of another government bailout this time in Europe has given the oil bulls new life. Moral hazard is hazard for the bears at least in the short term.

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 pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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