Economic and regulatory changes support crude

Just when you thought gas prices were going to go down, a pipeline leak and strong economic data out of China and relief that the Basel banking regulations did not go too far is conspiring to set a positive tone in the oil markets.

Chicago gets the shaft. While according to Trilby Lundberg the national average gas price fell 0.8¢ a gallon to $2.6899, Chicago and the Midwest prices soared. Enbridge Energy Partners LP shut a major oil pipeline in Romeoville right outside of Chicago that ships crude from Canada to refineries in the Midwest. The impact was felt across the markets as refiners may be forced to reduce runs. This can also increase the demand for higher yielding crudes as well to maximize output. Thanks goodness there is plenty of supply in storage or this could have been worse.

The market seemed to like the Basel rule or maybe they just like the finality of it all. Global blinking regulators agreed on a new set of rules designed to increase banks capital buffers to better be able to withstand large market movements but at the same time gave them more than a few years to get up to those levels. The global markets and the risk takers liked the deal.

They also liked data out of China that showed a 13.9% increase in August industrial production which was higher than expectations as well as a retail sales data that was strong. The China inflation rate in August was 3.5%, which was not bad considering the other data. This brought the buyers of commodities and oil back.

The Obama administration thinks that this is as good as time as any to pick a fight with China over trade. Treasury Secretary Tim Geithner said that, "China took the very important step in June of signaling that they're going to let the exchange rate start to reflect market forces. But they've done very, very little in the interim," Mr. Geithner said in an interview with The Wall Street Journal. The move did seem to keep Geithner from branding China a currency manipulator, which may have been the purpose.

Stop watch! Now it is Julie! While Hurricane Igor is a category 4 hurricane it looks like it will miss the Gulf. A new storm named Julie looks like it will miss also but it may be too early to tell. We have another tropical disturbance in the Gulf with a 40% chance of becoming a named storm but it is too early to tell what impact it will have as it will develop close to land if it does.

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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