Can crude prices recover?

After the Fireworks.

Now that the fireworks are over, the question becomes can oil rebound from the low seventies. The oil market is trying to get up off the mat after a very disappointing jobs report last week. So if the oil market comes back, does that mean the economy is not so bad? What does the government need to do to get the private sector moving again or maybe is it time that they get out of the way?

Non-farm payrolls fell by 125,000 as the census, the best job stimulus the government had going for it, cut 225,000 temporary workers. Yet at the same time the jobless rate fell to 9.5% from 9.7% as the labor force shrank. This does not bode too well for oil from the demand side of the equation yet from the price side of the equation it is not too clear. The economy is still so weak that the Fed will keep their foot on the economic accelerator creating some demand for oil but even more a weak dollar thereby keeping oil bulls from getting totally annihilated.

It appears that this anemic job growth is making the dollar look like it is running out of steam. It has been dollar strength that has pulled oil back down into the low seventies from the mid-eighties. Now it appears that because our job situation is so bleak not even the bad news in Europe can keep us supported.

According to the Wall Street Journal, “Less than four months after President Barack Obama took office, his new administration received a forceful warning about the dangers of offshore oil drilling. The alarm was rung by a federal appeals court in Washington, D.C., which found that the government was unprepared for a major spill at sea, relying on an "irrational" environmental analysis of the risks of offshore drilling. The April 2009 ruling stunned both the administration and the oil industry, and threatened to delay or cancel dozens of offshore projects in Alaska and the Gulf of Mexico. Despite its pro-environment pledges, the Obama administration urged the court to revisit the decision. Politically, it needed to push ahead with conventional oil production while it expanded support for renewable energy.”

“Another reason: money. In its arguments to the court, the government said that the loss of royalties on the oil, estimated at almost $10 billion, may have significant financial consequences for the federal government." The U.S. Court of Appeals reversed its decision and allowed drilling in the Gulf to proceed—including on BP PLC's now-infamous Macondo well, 50 miles off the Louisiana coast. The Obama administration's actions in the court case exemplify the dilemma the White House faced in developing its energy policy. In his presidential campaign, President Obama criticized the Bush administration for being too soft on the oil industry and vowed to support greener energy forms.”

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.

 

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