A Bank Bounce and Hot Money
A rebound in bank stocks in Europe is giving oil a reason to rally. With the dark clouds surrounding Europe and the lack of a debt deal, not to mention the ominous threat of QE 3D, will keep oil prices supported today. Yesterday turmoil in Europe drove prices lower as safety was job number one. Traders ran to gold and silver as they worried about the potential destruction of demand and the destruction of paper assets as traders fretted about the uncertainty surrounding another Greek bailout. Gold hit another nominal record high rising in prices for the 10th consecutive session in a row. (Buy them when they are creeping and sell them when they are leaping seems o be the rule of the moment). Yet the mood has shifted as the desire for yield and the shifting of hot money away from the United States and Europe back into the emerging markets that more than likely will spend that influx of cash on a whole bunch of commodities. A little stability Europe for the moment is bringing a bit of the risk appetite back.
Oil is bouncing back and even copper too as it is clear that with the problems continue to unfold in Europe and the United States will increase the odds not only of a QE 3D but also more stimulus to bail out the PIIGS. The growing risk of default in the Eurozone may have obvious demand destruction issues but money may want to get out of debt paper and buy something that is going to have value even if the global economic system grinds to a halt. Remember demand is passé when the printing presses begin to run.
The hot weather played a factor in yesterday’s trade as well. Natural gas futures tried to shrug off the sweltering temperatures but could not. Cattle sold off as weights are falling and farmers are rushing cattle to the market. Yet concerns of nuclear tainted beef because of infected feed from the Japan nuclear disaster hangs on the market.
Watch Brent crude as news that the rebels in Libya may be back in the oil business. Dow Jones reports, “The oil tanker, Captain X Kyriakou, docked in the rebel-held Libyan port of Benghazi Monday seeking to load crude oil; shipbrokers told Dow Jones Newswires Tuesday. The Suezmax vessel is owned by Athenian Sea Carriers. Its final destination is currently unknown, with its status according to AIS tracking live data at "awaiting orders."
Sheik Hugo! Bloomberg News reports that, “Venezuela holds the world’s largest crude reserves, following a 40% revision to estimates of the country’s deposits, according to OPEC. The Latin American nation had 296.5 billion barrels of crude at the end of 2010, the Organization of Petroleum Exporting Countries (Opec) said in its Annual Statistical Bulletin, published on its website. That compares with 264.5 billion in Saudi Arabia, little changed from 2009, when its reserves were the world’s largest. El Mundo newspaper reported on June 16 that Venezuela Oil Minister Rafael Ramirez said OPEC was including so-called synthetic crude from the country’s Orinoco Belt within its estimates of Venezuelan production. Iraq’s crude reserves were estimated by OPEC at 143 billion barrels in 2010, 24% higher than the previous year. The 12-nation organization accounts for about 40% of global oil supplies.” This is a legitimate source of reserve. While it is more expensive to extract it is there and possible. Take that peak oil worry-warts!
Still there are concerns for future supply! Reuter’s News reports, “Sustained oil prices above $100 could further heighten tensions over control of the South China Sea, as Vietnam, China and other Asian nations look to stake their claim on potential untapped energy resources and reduce their dependence on costly imports. Brent oil LCOc1 prices briefly rose above $127 a barrel in April of this year, the highest since 2008 just before the start of the financial crisis, and sustained levels above $100 were reached in late January on an evolving combination of recovering global demand and reduced supplies caused by unrest in Libya.
”While oil prices are notoriously volatile, key market analysts see Brent well above $100 a barrel through 2012 and a growing global supply and demand gap, factors that make potential oil discoveries in the South China Sea increasingly attractive for countries claiming sovereignty, analysts said.
"The high oil price is a major driver in this. China needs access to oil and gas to reduce their dependency on overseas supplies, which presents a strategic vulnerability," said Ian Storey, a fellow at the Singapore Institute of Southeast Asian Studies. "This is partly why tensions have been rising over the last two to three years because the Chinese feel the other claimants -- particularly Vietnam, Malaysia and the Philippines -- have been unilaterally plundering natural resources that really belong to them. China has made the largest claim over the area, and Taiwan, Vietnam, Brunei, Malaysia and the Philippines also assert territorial sovereignty, which covers one of the world's busiest sea lanes and also provides rich fishing opportunities.”
Reuters says that, “Except Taiwan, all other non-Chinese claimants are members of the 10-nation Association of South East Asian Nations (ASEAN), which will be holding the region's biggest security forum this week. The meeting at the Indonesian resort island of Bali is expected to focus on the South China Sea dispute and China's perceived muscle-flexing there. Estimates for proven and undiscovered oil reserves in the South China Sea range from 28 billion to as high as 213 billion barrels of oil,” the U.S. Energy Information Administration (EIA) said in a March 2008 report.
“The most optimistic outlook would be the equivalent to around 60 years of current Chinese demand. The Chinese refer to the South China Sea as the new Saudi Arabia or the El Dorado of oil. But I think that their claims of oil and gas reserves are widely optimistic," Storey said. The U.S. Geological Survey last year estimated a 50% chance that the area would hold at least 10.25 billion barrels of undiscovered oil, with most of it near the Spratly islands. A must read in Reuters!
With QE 3d hanging out there it may be time to buy breaks!
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 email@example.com.