How much can the poor oil bulls take? Oil prices, which defended $90 a barrel to make an assault back towards triple digits, is now struggling as global economic truth seems to be getting in the way of the bullish demand story. Credit woes in Europe are mounting with the increasing odds of a Greek default and fears of contagion into some of the much larger PIIGSs economies is taking away the good feeling that somehow Europe is going to be ok. China, the great hope for oil bulls, has reduced its imports while it still struggle to cool red hot inflation as the tightening measures to slow growth will have to continue. Even here at home the market is fighting a dismal employment outlook while the Obama administration seems to be auditioning for a role in a remake of an Alicia Silverstone film.
The problems in Europe have brought in somewhat the runaway Brent vs. WTI spread that went haywire on ongoing concerns of more problems with North Sea production. The Energy Information Agency arm of the Department of Energy is going to release its new “Short Term Energy Outlook” today and it should show some reduced demand expectations due to the weak job picture in the United States and the ongoing saga in Europe. In Last month’s report the EIA said that they expected that global oil markets would tighten through 2012 given projected world oil demand growth and slowing growth in supply from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC). They projected U.S. refiner crude oil average acquisition cost rises from $104 per barrel in 2011 to $108 per barrel in 2012. Now that demand in China is slowing and it will be interesting to see if those projections hold up.
For gasoline, the problems with Brent crude have kept prices elevated. The EIA predicted that regular-grade retail gasoline price averaged about $3.96 per gallon during the first half of May as unexpected refinery outages and disruptions in distribution caused by the flooding of the Mississippi River and its tributaries temporarily counterbalanced the impact of lower crude oil 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 firstname.lastname@example.org.