Energy report: Crude-currency connection

Greece the skids: Hey wait a minute! I thought the Greece debt cries was solved.

Didn't we think that when S&P reaffirmed Greece's debt rating and took them off the dreaded credit watch that all was well? Silly me, or is it the silly markets that just want to sweep away the reality of any debt crisis and want desperately to believe that all is well in Greece and the rest of Europe. It was just last Tuesday when the Euro soared above 1.33770 and investors ran away from the dollar in an environment where interest rates are at zero for an extended period. Now after just a few words from Greek Prime Minster George Papandreou all of a sudden the dollar does not look half bad and the Euro has fallen near 1.3580. Mr. Papandreou basically threatened the EU and warned that If Greece could not sell its bonds and the EU would not come to his rescue, they may have to go to the International Monetary Fund and get some help. Take that Germany! Well believe it or not it kind of worked as Germany said maybe they were open to helping Greece out their debt ridden embarrassing situation with the IMF's help. All of this Greek tragedy can really undermine the confidence in the Euro.

It also shakes the confidence of the oil bulls that are very dependent on a strong Euro, or at least a weak dollar, to keep their seasonally inspired ill fated bull drive alive. The oil bulls, who have own this market for about one month, need to take this thing to the next level shortly considering the state of the weak fundamental backdrop in crude oil. And yes I know all about China, blah, blah, blah yet the risks to China oil demand are rising each day. Oil is still in a range and will look very weak if it fails to make a stand and if it doesn't, look for it to come down hard.

And yes I know this is "The Energy Report" and not a foreign exchange report, but let's face it what's the difference these days? I hear all the time from long term friends and fans of "The Energy Report" who long for the good old days when we talked refinery runs and oil inventories and geo-politics because it mattered to price. Now it is all interest rates and exchange rates and the world has changed. Remember the good old days when we argued about the validity of the inventory reports. We miss the days of wondering why the numbers were so unexpected for the weekly supply reports that left us scratching our heads as to why we had gotten it all so wrong. Well maybe we weren’t so wrong after all! Today's Wall Street Journal reports on something many traders suspected at over the years and that was that perhaps the Department of Energy inventory reporting was a little off. Maybe a lot off. Brian Baskin at the Wall Street Journal writes that, "The U.S. government faces "critical" shortcomings in producing its oil-inventory data, according to internal Department of Energy documents, casting doubt on figures that affect the production and prices of the world's most important industrial commodity." Baskin says that "The documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency's weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out-of-date methodology that make it nearly impossible for staff to detect errors. A weak security system also leaves the data open to being hacked or leaked, the documents show. Moreover, problems with EIA data underscore the hazards of depending on companies or other firms to self-report data. Internal emails and a report from a consulting firm prepared in September describe a process at the EIA that served the oil world well in 1983, the first year that oil futures traded, but hasn't kept up as the inventory data have become more influential and the nation's oil infrastructure has become more complex. On Sept. 16, the EIA released data showing almost four million barrels of oil had vanished from the Cushing storage hub in Oklahoma during a single week. The market paid particular attention because Cushing is the nation's most important commercial storage facility. Its oil is used to fill orders from buyers on the New York Mercantile Exchange. Oil futures jumped 2.2% after the report but out of the sizable drop at Cushing, 1.7 million barrels represented a correction made after the EIA discovered a previous error in one company's reporting, according to the emails. James Beck, who heads the team that conducts the weekly survey, confirmed the correction in an interview. A second company's Cushing inventories also were off by a wide margin earlier in 2009, the emails indicate. Market participants consider the EIA data to be the best window into U.S. supply and demand, with the American Petroleum Institute, an industry lobby group, the only other major weekly source. A must read in today's Wall Street Journal.

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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