The big bounce
Commodity markets across the board bounced back like a high wire walker that fell and hit the net. Drama surrounding Greece and record export numbers from Germany, as well as fears surrounding the possible damage from the Mississippi River flooding if the levees don't hold against the worst flooding onslaught in 74 years, started the week on a wildly bullish note.
Overnight word that the IMF may offer a bailout to Greece and the CME raising margin requirements may signal that the rebound may be at risk. Despite the dramatic snap back and news that China's April trade surplus surged to $11.4 billion from $139 million it is likely we have still broken the back of the parabolic bull. We have to remember the lessons of great selloff of 2008 that despite the spectacular comeback, it does not erase all the technical damage that was done.
Still we have to worry about fundamental damage. Rising waters in the Mississippi may thwart refiners just when we need them most. Reuter's News was all over this reporting that Exxon Mobil Corp. may have to close down within the next few days on the north line of its pipeline system carrying crude from St. James, Louisiana to refineries in the region due to flooding. Reuters says that, "St. James is the delivery point of Light Louisiana Sweet, a major crude used by Gulf Coast refineries. Heavy flooding in the U.S. Midwest are expected to disrupt crude supplies in days and could threaten a swathe of Louisiana plants within weeks as the rising waters move south down the Mississippi."
"We are operating and like everybody else watching the situation carefully," said Kevin Alexon, a spokesman for the company. Reuters' also reported that, "Royal Dutch Shell Plc said on Monday its refineries and chemical plants in Louisiana along the Mississippi River were preparing for possible flooding and river traffic closures." "This could affect our ability to load barges and ships at some of the docks at our Geismar, Louisiana, and Norco, Louisiana, facilities," Shell spokeswoman Jill Davis said in a statement. Shell has refineries Convent and Norco, Louisiana, with chemical plants nearby.
These flood fears, coupled with the rebound in other commodities, drove gasoline through the roof giving its biggest one day gain since 2006. What is funny about that the rebound is it kept us well shy of the high and did not fix the damage done to the chart.
The last time we had all this many problems in Greece we had a flash crash. Threats or rumors about Greece leaving the EU and a downgrade by S&P sent the euro in a tizzy and now there is word that it will be the IMF to the rescue. With all of this turmoil can the EU now even think about raising rates in June? The Euro will be under pressure and that should also take the heat off of commodities as well.
CME group increased crude margins after crude oil had the biggest 5 day drop since 2008! Gotta be the volatility. Wild volatility is something you can learn to love...well, maybe!