Quick Change
Wild moves in oil driven by constantly changing fundamentals that seem to change hour by hour. Oil prices continue to get whipsawed as the global macro economic outlook changes faster than a quick change artist in a hurry! Yesterday and even into this morning the outlook for oil was influenced by Italy, Greece, Europe, The International Monetary Fund, the Federal Reserve, OPEC, China, The Energy Information Agency, the International Energy Agency and by technical factors. In the Morning it was being much larger then Greece’s would because major ramifications for the Euro zone and the oil demand outlook for the world at large as the contagion threatened to spread. Yet some happy talk from the International Monetary Fund and promises by Italy to get its spending under controlled seem to be the panacea that market confidence just needed for a moment.
Oil and stock markets started to rebound when as reported by the Wall Street Journal “Italy's economy minister Wednesday said the country's four-year fiscal plan will be made more stringent." The budget bill will be bolstered for each individual year," Giulio Tremonti said in an address to bankers in Rome. He also vowed that the bill will be passed by parliament by Friday. Italy's plan to balance its budget by 2014 shifted most of the spending cuts to 2013 and 2014, prompting criticism that the government lacked credibility.” So Friday will be another day to watch Italy for the next market scare.
It also helped that new IMF chief Christine Lagarde said that the IMF would be there to help out Greece. Reuters’ reported that “The International Monetary Fund on Tuesday welcomed Europe's decision that Greece's debt problems require a broader response and said it would cooperate in trying to help."The IMF welcomes the Eurogroup reaffirming their commitment to safeguard stability in the euro area," IMF Managing Director Christine Lagarde said in a statement. "We also welcome the ... recognition of the need for a broader, more forward-looking policy response to assist Greece in its efforts to restore growth and competitiveness, and to bolster debt sustainability," she added
These soothing words helped turn things around helping to cool the dollar down and bring the Euro Currency back from the brink of a major breakdown. Once again all was well in the Eurozone and the PIIGS were fast asleep’ yet late in the day another PIIG problem regurgitated. Moody’s downgraded Ireland once again raising fears that the market might fall part. Once again it looked like a rush to the exits and oil demand expectations once again went hurdling towards the earth.
On top of that you had demand expectations being ratchet back by OPEC and the Energy Information Agency and by the International Energy Agency who also questioned China demand. First it was OPEC who according to RTT News “slightly lowers world oil demand growth as the unsteady global economy has added risks to the forecast. In its monthly Oil Market Report OPEC lowered its world oil demand growth forecast to 1.36 million barrels per day, marginally down from its earlier prediction of 1.40 million barrel per day. Global oil demand is expected to grow at a slightly lower 1.32 million barrels a day in 2012.
Then the Energy Information Agency lowered its demand forecast. Market Watch reported that” Global oil demand will grow 1.65% to 88.16 million barrels a day this year, the U.S. Energy Information Administration projected Tuesday. The forecast is a modest 0.3% reduction from levels forecast a month ago, as world economic growth lagged expectations. Still, the EIA warned of a tightening global oil market through 2012, with the demand met by rising production from all producers and draw-downs of commercial oil inventories. The EIA said the coordinated release of 60 million barrels of oil from consumer emergency stockpiles will help reduce the volume by which company-held inventories will need to be too tapped to meet demand. Still those buffer inventories are expected to decline significantly through 2012, when rising demand and slower growth supply from countries outside the Organization of Petroleum Exporting Countries is expected. Global oil demand in the second quarter rose 1.3%, to 87.36 million barrels a day. But that was less than the 1.9% growth projected in the month-earlier forecast. Demand from China, the world's second-biggest oil consumer, rose 8.6% in the quarter, to 10.11 million barrels a day, and accounted for more than half of the 1.54 million-barrel-a-day rise in demand from countries outside the Organization for Economic Cooperation and Development grouping. In the current quarter, demand is projected to rise 1.8%, down from 2% in the June forecast, with China's use up 12.7%.Fourth-quarter world demand is expected to gain 1.2%, to 88.83 million barrels a day, with China up 11.5%.”
The International Energy Agency Also lowered its demand a bit but with a warning. Reuters reported that “ world oil demand growth will accelerate next year, adding to the pressure on available supplies, the International Energy Agency said , contradicting a more conservative outlook from producer club OPEC. In its first 2012 forecast in a monthly report, the IEA, adviser to 28 industrialized countries on energy policy, said oil use would grow by 1.47 million barrels per day (bpd) to a hefty 91 million bpd, compared with 2011 demand growth of 1.2 million bpd. Its growth prediction for next year was slightly lower than a forecast from the United States' Energy Information Administration but more than the 1.32 million bpd expected by the Organization of the Petroleum Exporting Countries.”
Obviously the market is still looking to China
Market Watch Reported that China's gross domestic product expanded at a faster-than-expected rate of 9.5% in the April-June quarter from the year-ago period, signaling the economy was growing at a rapid clip despite several monetary tightening measures. The growth rate was higher than the 9.4% anticipated in a survey of economists by Dow Jones Newswires, although it was weaker than the 9.7% increase in the three-month period ended March 31. Data simultaneously released also showed June industrial production improved 15.1%, trouncing expectations for a 13.7% increase, while monthly retail sales jumped 17.7%, topping Fact Set Research estimates for a 17% rise.” The strong data again boosted hopes that perhaps China’ would not face a hard landing and perhaps their energy demand might not fall as hard as recent import and inflation data might suggest.
The Fed though held a surprise daring to talk about QE 3d, In the minutes The Fed played the two handed economist by saying “On the one hand, a few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run. On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps to begin removing policy accommodation sooner than currently anticipated.
What is more you will have Federal Reserve Chairman Ben Bernanke on Capitol Hill that surely will be grilled on the how and whys of a possible QE 3D.
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.
