Default fears flop
The weekend just seems longer when you have a long position. Oil traders just couldn't face the weekend as fears about the European banking system caused a late day Friday sell-off. Oil prices dropped a whopping 3.6% as fears that banks will quit lending to each other because of their exposure to European debt rocked traders. Oil prices almost took out the low tick for the year and despite closing at the lowest level for the year, the price is still holding for now with traders wondering whether Europe has the will and the guts to do what is necessary to save the European bank. The US is very worried about our banks’ exposure to the situation and we're asking for more up to date information of the European bank balance sheets. The UK treasury is now saying with fear that the risks to Britain are very, very great. Those fears are spreading and hit commodities like a brick wall.
The market was already wobbly on fears of Chinese slowing after China's PMI fell for the third month in a row, which was the first time that has happened since 2009. Weak data out of Germany added to those fears. Now it is up to European leaders to try to restore confidence as they meet this week to discuss a permanent European rescue fund. It will have to be something big and spectacular if they are going to get this market to start believing that Europe can get a handle on this crisis.
In the mean time the market is already seeing the impact of Libyan oil. Not only has the Brent WTI spread come in, but we are seeing the added benefit of OPEC oil output hitting the highest level since November 2008 and they are now producing an astounding 30.055 million barrels per day.
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.