PIIGs a factor for energy once again

When Irish Bonds are Crying.

Remember the European financial crisis? Sure you do! You remember I know you do. It was when Greece looked like it hit the skids and it appeared they were headed for default! And worries surrounded countries with the acronym PIIGS (Portugal, Italy, Ireland, Greece and Spain) were ready to go over the edge! The stock market was crashing and oil prices were plunging and it looked like we were getting ready for a major global market meltdown. But then when all was nearly lost, the EU stepped up to the plate with a whopping €750 billion rescue package and instituted a series of European Bank stress tests to assure the world that gosh oh golly things were going to be ok and magically all of the problems seemed to go away. The Euro came roaring back and the risk trade was back in vogue and oil was saved from a plunging deflationary bloodbath.

I hope you remember that crisis because it may be back. We may be seeing that the European crisis is not over after all. Imagine that. With the European stress test not worth the paper they are printed on and when Irish bonds are crying, the question is being raised whether or not the global economy can continue along in this mask of economic delusion. If the European stress tests were fixed to give us a positive outcome then the market needs to reassess the risk. This will add more uncertainty and lead to some wild swings in the market as well as the confidence in the overall marketplace. This comes as rumors are swirling that Ireland may be the next PIIG to dip in the trough of the EU’s rescue package. Bloomberg news reported that Irish Finance Minister Brian Lenihan said he doesn’t expect Ireland will have to tap the European Union rescue fund as markets “remain open” to the government. “Markets have remained open to Ireland throughout the economic crisis,” Lenihan said today in Brussels after a meeting with his EU counterparts. “I don’t anticipate” that Ireland will have to use the fund, he said. “What we anticipate doing is continuing to go to the markets and borrowing in the ordinary way.” Ordinary way? That is what worries us.

These concerns in the market helped sink oil yet it did come back on a product led rally in large part due to an explosion at a major Mexican Refinery. Petroleos Mexicanos, which according to Bloomberg News, is Latin America’s largest oil producer said its 235,000 barrel-a-day Cadereyta refinery outside the city of Monterrey was hit by an explosion. At least seven died and an undetermined number of people were injured in the accident, Excelsior newspaper reported, without saying where it got the information. Pemex confirmed one death and said 10 were injured, according to a spokesman who declined to be named, citing company policy. The refinery is continuing to operate, he said, without giving more information.

This blast brought the market back and pressed the fact that the oil market is vulnerable for a major downside correction. With record supply and as we head into shoulder season we should see continued downside pressure. Yet at the same time we have seen the market get boosted at times by positive economic reports and developments so you have to know that we will see some big ranges.

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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