Oil advances; Greece looks for more aid

Get me to the Greek on time!

Remember that little fiscal crisis in Greece? Well you might as well forget about it because at least for today, the market is! A new month filled with summertime optimism is rejoicing that Greece has been saved again! Just agree to a little austerity and you get bailed out! If you liked the first bailout you are going to love this one because the risk trade is back! Buy oil and buy gas because no matter what happens, you always know that someone somewhere will be waiting to bail you out.

Reuters News reports, "The euro rose to a three-week high against the dollar, while world stocks and oil prices advanced on a report that Germany could make concessions to facilitate a new aid package for Greece." Yahoo! Reuters goes on to say, "Berlin, which along with some other countries had resisted extra funding, is considering dropping its push for an early rescheduling of Greek bonds, the Wall Street Journal said. That was in line with the tone of comments by Berlin's finance minister last week, although other substantial barriers appear to remain to the provision of extra financial help to deal with Greece's financing needs next year. Worries over the Euro zone debt crisis have driven the euro sharply lower this month and it is on course for its first monthly loss since November."

Whether you think this is the end of the Greece crisis or just the beginning, it does not matter; the perception is very bullish for oil and other commodities.

At the same time Yemen is falling into chaos. Reports that al-Qaida has control of a city in Yemen is raising more concerns about the region. The Energy Information Agency reminds us that a very important choke point for global oil supply is right along Yemen. "The Strait of Bab el-Mandab is a chokepoint between the horn of Africa and the Middle East, and a strategic link between the Mediterranean Sea and Indian Ocean. It is located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea. Most exports from the Persian Gulf that transit the Suez Canal and SUMED pipeline also pass through the Bab el-Mandab. An estimated 3.2 million bbl/d flowed through this waterway in 2009 versus 4 million barrels per-day in 2008 toward Europe, the United States, and Asia.”

The EIA says that security became a concern of foreign firms doing business in the region, after a French tanker was attacked off the coast of Yemen by terrorists in October 2002. In recent years, this region has also seen rising piracy, and Somali pirates continue to attack vessels off the northern Somali coast in the Gulf of Aden and southern Red Sea including the Bab el-Mandab.

Gas prices have fallen and the Oil and Gas Journal reported API chief economist John Felmy as saying that gasoline prices are simply driven by the product's manufacturing costs and that market fundamentals, rather than speculation, are what drive's today's higher prices. Pump prices are up from a year ago because refiners are incurring higher costs for oil and ethanol.

Higher credit card fees and sales taxes also are contributing to the increased prices at the pump. Felmy said that gasoline demand in the US was up in this year's first quarter compared with year-earlier levels. In April, however, demand declined 2.2% from April 2010. Urban areas especially experienced a decline in demand in April, Felmy said, adding that it is difficult to determine whether this dip was the result of the sluggish economy or if it was due to higher gasoline prices.

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.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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