The Autumn Un-equinox
Gold sizzles, oil fizzles in the aftermath of the Fed promise to re-inflate the economy. Oil and the leaves are beginning to fall as demand for oil and the economic outlook continue to weigh heavily. The disparity between gold and oil recently seem to reflect the despair that we are feeling from the FOMC committee or perhaps the Obama economic team. Now this morning the market fears that demand for oil may fall in Europe as well after a euro-zone purchasing managers' survey fell to 53.8 in September from 56.2 in August, the slowest pace in seven months. While their manufacturing sector is still expanding the market was looking for a number closer to 55.7%.
This slower pace comes a day after a very bearish Energy Information Administration (EIA) report that showed a surprise increase in crude supply and a depressing feeling on demand. If you were worried about the impact that the Enbridge pipeline shutdown and inclement weather might have had on supply I guess you shouldn’t have because supplies increased anyway. Crude defied expectations rising by 1.0 million barrels while demand was lousy. Total oil use was the lowest since last July. The EIA said that total products supplied averaged only 19.5 million barrels per day. Yes it was up by 1.6% compared to the similar period last year but last year was a disaster. Gasoline demand has averaged 9.1 million barrels per day, down by 0.1% from the same period last year. That’s right! Down!
On the positive side of the demand equation distillate fuel demand has averaged 3.8 million barrels per day over the last four weeks, up by 12.9% from the same period last year. That demand is being driven by farmers using diesel to harvest crops. The demand also reflects strong U.S. exports to South America where they want to get those crops in to take advantage of the current high grain prices. Jet fuel demand came in at 2.4% higher over the last four weeks compared to the same four-week period last year.
Are you ready for another way to try to take advantage of the volatility in oil and gold? Well the CME Group has got you covered and they want you to know that in the fourth quarter of 2010 it will begin offering futures and options contracts based on gold and oil volatility indexes that have become so popular. The CME says that the futures will combine CME Group's options market data with the Chicago Board Options Exchange (CBOE) Volatility Index® (VIX®) methodology. These contracts will be listed with, and subject to, the rules and regulations of NYMEX and COMEX. They go on to say that The CBOE/NYMEX WTI Volatility Index and the CBOE/COMEX Gold Volatility Index are the first to launch since CME Group entered a seven-year licensing agreement with CBOE, which gives CME Group worldwide rights to list futures and options on futures for volatility indexes on a variety of asset classes. In addition, futures on corn and soybean VIX indexes are expected to launch in the first quarter of 2011!
Previously CBOE calculated VIX on crude and gold but they were based on options on oil and gold ETFs.
Oil looks like it is getting ready to make a move to test the lows for the year. The question is whether the dollar or weather can stop oil from its seemingly deflationary fate.
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 firstname.lastname@example.org