Oil shaken by Greek referendum and Chinese data

Confidence Game

When it comes to the markets, confidence is key. Yet obviously if you look at the last 24 hours confidence has been shaken. Whether it be the call for a Greek referendum on the EU bailout or the weakness in the Chinese manufacturing data or the situation with the bankruptcy of MF Global, confidence has been shaken. And despite the blow to confidence, the markets are something that you can believe in. You can also believe in the protections offered the customer provided by the exchanges.

The oil market, despite the absence of MF Global traders, had a very low volume and oil prices acted like they would have if all traders were present. They reacted as you might expect to the movement from the Japanese yen and dollar intervention and the economic data. They reacted to strong Libyan oil production that rose 245,000 barrels to 345,000, the highest level since March. Or strong production out of Iraq and the highest OPEC oil production since 2008.

Yet while the markets functioned correctly, a disturbing story by the New York Times is making people nervous. The New York Times reports that, "Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday. The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday. Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse. The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days. But the investigation, which is in its earliest stages, may uncover something more intentional and troubling. In any case, what led to the unaccounted-for cash could violate a tenet of Wall Street regulation: Customers’ funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis. Neither MF Global nor Mr. Corzine has been accused of any wrongdoing. Lawyers for MF Global did not respond to requests for comment."

The other thing to remember, the protections that exist by the CME Group that has a 100% track record of protecting customer funds. While it may take time to sort out the MF Global mess I have full confidence in the CME Group that all customer funds will be protected. The markets are much bigger than one firm no matter how large they are. In fact the New York Time said, "For now, there is confusion surrounding the missing MF Global funds. It is likely, one person briefed on the matter said, that some of the money may be “stuck in the system” as banks holding the customer funds hesitated last week to send MF Global the money."

I wish I felt as confident about the situation in Greece. Bloomberg News reported that, "Greece's decision to call a referendum on its five-day-old bailout blindsided its European partners and placed another hurdle in the way of efforts to staunch the debt crisis, German coalition lawmakers said. The announcement came “out of the blue, it’s surprising, very risky,” Norbert Barthle, the ranking member of Chancellor Angela Merkel’s Christian Democratic Union party on parliament’s budget committee, said by phone. “There’s an enormous amount at stake. Do we know how the Greek people will treat their government in this referendum? No. We have a new unknown.” French President Nicolas Sarkozy will call Merkel at midday today to discuss the Greek referendum that sent stocks and the euro tumbling, the Elysee said. Sarkozy is “dismayed” by the Greek plan, Le Monde newspaper reported, citing unnamed people close to Sarkozy."

Add to that weaker than expected data out of China. Bloomberg News reported that, "China’s Purchasing Managers’ Index fell to 50.4 from 51.2 in September, the China Federation of Logistics and Purchasing said today. That compared with the median estimate of 51.8 in a Bloomberg News survey of 16 economists. The nation is the world’s second-biggest oil user, after the U.S."

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.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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