Crude market calms down on drop in demand

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It looks like oil traders are ready for the weekend after a period of high anxiety and conflicting data it now appears the market is trying to calm down a bit. Oil did seem to react to the PMI report that showed China's manufacturing activity contracted for the third straight month in January. Of course for oil that is a doubled edged sword. While weaker manufacturing in the short run may reduce demand expectations, in the big picture it is bullish because it basically ensures us that the Chinese government will move to stimulate the economy.

At the same time the Energy Information Agency report raised fears of another slowdown from the U.S. consumer as gasoline demand plummeted. Probably the most disturbing statistic was explained by David Bird, numbers cruncher extraordinaire at Dow Jones, who pointed out that gasoline production exceeded demand by an 11-year low of 7.996M barrels per day while gasoline output hit a 4-week high.

Iran worries still linger. Bloomberg News reports that Israeli leaders held talks with top U.S. military commander, General Martin Dempsey, who arrived after the postponement of a joint exercise that was to be the biggest ever for the two allies. Dempsey, Chairman of the Joint Chiefs of Staff, met today with his Israeli counterpart, Lieutenant-General Benny Gantz, on his first visit to the country as the Obama administration’s top military adviser. He also met with Defense Minister Ehud Barak.

Greece hopes on the other hand may give some confidence. The Wall Street Journal says that, "Greece on Friday began meeting with a visiting delegation of international auditors for a new bailout loan, coinciding with parallel negotiations with private creditors to restructure the country's debt. The talks with the auditors from the European Commission, the International Monetary Fund and the European Central Bank—known locally as the "troika"—are expected to focus on structural changes Greece must make to secure a new financial-rescue package. "Most of the emphasis will be on structural reforms," said a Greek government official. The specific focus will be on steps needed to boost Greece's hidebound economy, now in its fifth year of recession, by liberalizing industries and cutting bureaucratic red tape. There also is pressure on the government to make up for missed deficit targets last year, as well as to detail some €12.5 billion ($16.21 billion) in further fiscal cuts to narrow Greece's budget deficit over the next four years, according to an official familiar with the situation. In October, Greece's European partners and the IMF agreed to provide the debt-strapped country with a fresh €130 billion loan to cover its financing needs through 2015. The bailout would be the second Greece has received in just under two years after a first loan deal, signed in May 2010, proved insufficient to cover the country's yawning budget gap.

Reuters News reports, "Exporting the U.S. natural gas surplus could add as much as 9% a year to prices of the fuel for consumers and industry over the next two decades, government analysts said on Thursday in a report that could provide fodder for critics who want to keep the resource at home. With U.S. benchmark gas prices sinking to their lowest in a decade as a result of booming shale production, natural gas companies want to export some of the glut to higher-priced markets in Europe and Asia, but they need permission from the government. The U.S. Energy Information Administration said on average, consumers and industry would spend 3% to 9% more each year over a 20-year period on natural gas because of expanded exports. On average, U.S. consumers could see a 1% to 3% increase in their electricity bills between 2015 and 2035", the report said.


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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