Energy report: Demand in question

The reason why last week's jobs report was so bad was because we were mislead and told it was supposed to be so good. The Obama administration told the markets a big whopper and the market made them pay. The global economy is looking for confidence and credibility so when the administration misled us the market now thinks they may be hiding something worse. Both Obama and Bided falsely raised the expectations of the market place by touting a super strong jobs report that was not there on Friday. If you don’t have anything truthful to say about an upcoming report then say nothing at all. If you want to spin the report to your own political advantage, well that is fine with me but do it after the report is released and not before. So much for this so called great jobs report that showed that the private sector employment is struggling. The part of the report that they were trying to get people to focus on was the headline number that showed there were 431,000 jobs created in May nationwide. Sounds great but the truth is that the majority of those jobs were workers hired by the federal government to work the census. And the census jobs have been counted twice and sometimes even more. What's more they'll be jobs that will disappear in a few months when the census is over. In the real world in the private sector only gained 41,000 private jobs, well below the 150,000 to 180,000 jobs that were expected.

The leader of the world’s largest economy needs to restore confidence and credibility in the marketplace. We do not expect the administration to mislead us. The market does not need to be lied to the same way Greece and Hungry lied about the true state of their debt and economies. That is not the way to foster an economic recovery. We have major debt issues of our own and need a leader we can believe in. Bloomberg News, in a widely followed article, said that, “President Barack Obama is poised to increase the US debt to a level that exceeds the value of the nations annual economic output, a step toward what Bill Gross called a “debt super cycle”. Bloomberg included a chart that shows U.S. gross domestic product and the government’s total debt rising past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. Another shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.

How will we be able to finance this huge debt? These types of numbers may mean higher interest rates especially if the market loses confidence in the truthfulness in the issuer of such debt. Remember how the short sellers pounded Greek bonds when they found out they had been lied to. To overcome these huge obstacles we are going to need some truth.

We have already seen the impact of what fears of these lies can bring. Fear expressed in real moves in the market as money moves to gold when confidence sinks in currencies on the faith and credit of the underlying country. Spin is fine but trying to tell us we are going to drink cool aid and feed us cough medicine is rightfully going to make us gag. Reuters News said that the CBOE Volatility Index VIX surged as the U.S. stock indexes tumbled on Friday. The VIX, which is Wall Street's favorite measure of investor fear, jumped 20.4 percent to close at 35.48.

Obama has always been quick to single out Wall Street for serving their own self interest over the common good. Is he not doing the same thing by trying to hype a jobs report for your own political benefit to try to take the focus away from your performance over the Gulf oil spill that has seen your popularity rating fall as fast as the stock market? The truth is that there were some positive signs in the report yet the deception leading into that report has the marketplace less likely to latch on to that optimism and run with it. We have seen a string of months where job creation has been positive and employment, as measured by the household survey, is up by 1.6 million since December. Yet why would the market place try to find a silver lining when it feels it has been had.

Oil bulls also paid the price as the outlook for strong demand seemed to get murkier in this web of lies. The energy market has been trying to believe that the global outlook is rosy. Oil prices dipped into strong support below the $70.00 area and is attempting a bit of a rebound. The key for the bulls is to defend $70 on a closing basis. Why is oil so strong when the economy is so weak? It could come down in part due to government subsides. The Financial Times, in a must read, says that, “The world economy spends more than $550bn in energy subsidies a year, about 75 per cent more than previously thought, according to the first exhaustive study of the financial assistance devoted to oil, natural gas and coal consumption. The study by the International Energy Agency, the western countries’ oil watchdog, says phasing out subsidies over the medium term, as agreed last year by the G20, would trigger vast savings in energy consumption and carbon dioxide emissions. Past efforts have floundered as many countries have vested interests in providing lower-cost fuel to their citizens and industries, and in propping up sectors such as coal mining.” “The IEA estimates that in 2008 – the latest year for which data are available – 37 large developing countries spent about $557bn in energy subsidies, according to a draft seen by the Financial Times. Previous estimates put it at about $300bn. Iran, Russia, Saudi Arabia, India and China top the ranking, according to the report. Some of the biggest spenders, including Saudi Arabia and China, recently warned of the need to cut subsidies over the medium term. Fatih Birol, chief economist at the IEA in Paris, said removing subsidies was a policy that could change the energy game “quickly and substantially”. “I see fossil fuel subsidies as the appendicitis of the global energy system which needs to be removed for a healthy, sustainable development future,” he told the Financial Times. “Phasing out oil, natural gas and coal subsidies would increase energy efficiency and push investments in clean energy sources,” he added. The new report will be discussed at the G20 summit in Toronto this month. The IEA estimates that energy consumption could be reduced by 850m tonnes equivalent of oil – or the combined current consumption of Japan, South Korea, Australia and New Zealand – if the subsidies are phased out between now and 2020. The consumption cut would save the equivalent of the current carbon dioxide emissions of Germany, France, the UK, Italy and Spain.”

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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