Energy report: A Greek love story

To Greece with L-O-V-E.

L is for the way you love to spend. O is for Oh gosh it has to end. V is very, very bad budgetary. E is even more cuts that even unions can’t ignore. Cash is all that they can give to you. Bailouts are just one but maybe two. Save Greece, the rest can make it, fix your budget and please don’t break it. Love was made for Greece and you.

There is nothing like a tragic Greek love story. Greece got a lot of love just ahead of Valentine’s Day as the EU says they will stand behind Greece and their mountainous piles of debt. They will stand behind them despite the fact that they are angry at them for running their debt last year to 12.7% of their GDP even though the EU’s limit is 3%. How romantic! But now get your hankie out as you know so often these Greek love stories are really a tragedy. A tragedy that in the short run may look like a match made in heaven but could lead to more bad behavior. It may lead to more bailouts and more bad behavior from other EU countries like Portugal, Italy, Ireland and Spain that will expect the same type of loving treatment.

Still the EU stands behind Greece despite the fact that not all has been well in this passionate relationship with the EU. Forget those rumors floating around about help from the International Monetary Fund as the Greeks say, they were only talking and getting debt advice and not asking for the cash. A likely story! But if the EU spurned Greece, would they get into a relationship on the rebound?

Of course all of this has significant implications for oil and commodities! The value of commodities has been determined in large part by the value of the dollar and its relationship to the Euro. The carry trade has made the Euro soar. The growing potential for more bailouts from the EU means that confidence in that currency may never be what it was.

Yet today the market's focus is on a Funny Valentine from China. China once again is raising their discount rate in a surprise move that caused oil to fall from its major resistance of $75.50. We have raised the concern about China bubbles in the wine makes me happy all of the time and this aggressive move by China’s Central Bank said it will raise the reserve-requirement ratio for banks by half a percentage point from Feb. 25, for the second increase this year. This means that major banks in China have to keep 16.5% of their deposits on reserve though the specific rate can vary for each bank according to the Wall street Journal. For oil demand this is critical as demand growth for oil is almost all focused on growth in China the world’s major emerging market. In fact in yesterday’s International Energy Agency report they said as much. The Financial Times reported that the IEA said demand growth this year would come entirely from emerging markets and that, in spite of an improvement in the outlook for economic growth in the developed world, expectations for oil consumption in the West had barely changed. Overall, the IEA said that we will see global oil demand growth by 120,000 barrels per day to 1.6m b/d with worldwide consumption expected to average 86.5m b/d this year. Of course that was before China’s surprise move.

As I wrote yesterday that a close above $75.50 means the bulls should try to test near $80 but we failed at that level. Now that is a major resistance. The news out of China should mean that that level should be a great area to play off of for a long term move! The Department of Energy report is still a hurdle but play off of that level.

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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