Debt Crisis Bingo
What country are they going to call out today! While everyone thought the US would dominate traders’ minds, it was Greece, Spain and Italy that caught the market by surprise. If you have them in that order then yell Bingo. Who thought that it would be Europe that would raise its ugly head and drive the Euro and oil lower? In fact we may have overcome yesterday's bearish EIA report but the weakness in the Euro kept oil on its back. The question is can oil stay weak as the US debt saga drags on and tropical storm Don emerges in the Gulf of Mexico and is pointed towards Galveston. Another Greek downgrade and warnings from the ratings agencies about Italy and Spain took the focus of the US debt ceiling charade. Greece’s credit rating was cut to CC from CCC at Standard & Poor’s and has a negative outlook while other worries surrounding not only the US but Ireland, Italy and Spain. BINGO!
A bad 5 year note auction in the US had the market fearing the Italy auction. The Wall Street Journal reports, “Italian funding costs soared Thursday when the country sold EUR7.966 billion in bonds, near the maximum amount targeted, as bond investors kept up the pressure on the highly indebted country. The yield on the closely-watched 2021 Italian government bond, or BTP surged to 5.77% from 4.94% at the previous auction June 28." A close to 80 basis points jump on what they paid last time is huge. Italian debt weakened in the secondary markets after the auction and the 10-year BTP-bund spread, up 16.6 basis points on the day at 327 basis points, is near euro area highs. The higher yields came despite euro-zone leaders agreeing to a deal on Greece last Thursday, along with additional measures to prevent further contagion within the single currency area. Market participants are anxious that details of these measures are still to be worked out. Bond investors also seem to be shrugging off Italy's recently approved EUR48 billion austerity package. US 7 year is big today!
The Energy Information Agency reported that in January refining capacity in the United States was the highest it was in 29 years yet a drop in refining runs helped lead to a bearish build in supply. Weak demand that reflect what we saw in the US durable goods market sunk us. The EIA reported that refinery runs fell back much more than expected to a disappointing 88.3%, still high but not as high as hoped for. Crude oil refinery inputs averaged only 15.4 million barrels per day. That set the stage for a 2.3 million barrel build in crude as gasoline pr0ductiuon dropped to 9.2 million barrels per day. U.S. crude oil imports averaged 9.8 million barrels per day last week, up by 497 thousand barrels per day from the previous week. Gasoline inventories increased by 1.0 million barrels last week and distillate fuel inventories jumped by a gigantic 3.4 million barrels signaling weak manufacturing demand.
Refiners to worry about. Valero Texas City, Marathon Texas City, BP Texas City, KIOR , Lyondell Basil, Allied Chemical, etc…. Get the Picture? Galveston, oh Galveston, before I watch your sea birds flying in the sun at Galveston, at Galveston.