A Bullish Start
The Fed is laying the ground work for more quantitative easing in the form of buying back mortgage-backed securities. Europe is supposedly closer to a deal to save the Eurozone, a strong PMI in China and the uncertainty surrounding the death of Saudi Arabia’s Crown Prince Sultan bin Abdulaziz Al Saud is impacting the energy sector. The big question is why isn't oil higher than it already is?
China's flash PMI, rose to 51.1 showing expansion in the Chinese manufacturing sector for the first time since mid-summer. The first reading on Chinese manufacturing was an improvement from the final September reading of 49. Still some wonder why we have not seen Chinese demand for oil increase.
Reuters News reports, "China's implied oil demand rose a tepid 1 percent over a year earlier in September at about 8.9 million barrels per day, the lowest rate so far this year, according to Reuters calculations based on preliminary official data released on Tuesday. Implied oil demand was calculated using China's refinery crude throughput plus net imports of refined fuel but excluding changes in fuel inventories, which China rarely publishes. Fuel demand in the world's second-largest oil user has, since June, eased off from the double-digit growth pace seen since late last year, as the Chinese economy grew less rapidly, but China still contributed more than half of the global incremental oil demand.”
If Chinese oil demand slows to single digit growth, then prices should ease. On top of that the Chinese government has taken steps to try to rein in inflation. That potentially means that demand for oil has peaked or the Chinese are using reserves that will have to be replenished! Stay tuned.
Now the question is whether or not China will buy European bonds. Reuters News reports that French President Nicolas Sarkozy backed down in the face of implacable German opposition to his desire to use unlimited European Central Bank funds to fight the crisis. Instead, the Eurozone may turn to emerging economies such as China and Brazil for help in underpinning its sickly bond market. Still the market is optimistic that this time, really this time, the Eurozone will make a plan that will really work.
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.