Oil soared to a new high inspired by, what else, the promise of more stimulus! The European Central Bank gave commodity bulls the green light to come back in and buy just days after the market was sinking on fears that the problems in Ireland would spread throughout the region, killing demand for oil and all the things that go with it. The ECB reportedly was already buying Portuguese and Irish bonds in massive quantities causing a rally in the Euro and by default, a break in the dollar. The dollar that has rebounded from its QE2 lows in a safe haven bid took a back seat to those freshly printed Euros used to solve the latest PIIG problem and now everything is ok.
Of course time after time, as I have written before, the price of oil has been saved time and time again by central bank bailouts. The first time coincided with the first financial scare of 2010. Does anybody remember the Dubai crisis? Yes that was before the Greece crisis that led to the infamous "Flash Crash", the low price for oil this year. It also led to another bailout, not only for Greece, but for the oil market as well. Then as the U.S. economy stagnated, oil supply hit record highs and oil demand went into a malaise and so it was the Fed to the rescue with QE2 to stimulate demand! And this time it was the EU's turn to save the world and save the oil.
Yet, might this time be different? Could there be more behind the oil rally then the artificial impact of stimulus? The oil market has been bombarded with a rash of strong economic data. We just saw a historic 10.45 jump in pending home sales. That drove every material commodity to soar like oil, lumber copper etc. Yet on the last day of November the market sold off even as we saw better than expected readings in U.S. Manufacturing and Consumer Confidence. And the report from the Institute for Supply Management-Chicago Inc. rose to 62.5, the highest level since April when it gave a reading of 60.6. Consumer Confidence soared to a reading of 54.1, the highest level since June telling us that Santa Claus was just around the corner.
Strong economic data just keeps coming. China's Purchasing Manager Index soared to 55.2 and we also had a slew of better than expected economic readings out of Europe. Even Ireland's manufacturing and Spain's manufacturing index beat expectations. And In Germany, their economy is just soaring! With all of this data it seems that oil has reasons to be bullish other than the crunch of printed money. Yet there still is at least a $15 to $20 stimulus premium in every barrel. Have an awesome weekend!
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.