Oil bullish after Spanish bank bailout

The One Hundred Billion Euro Bounce

Spain’s banks get cash and oil gets one hundred billion reasons to rally or if you talk in dollars, 125 billion reasons to rally.  So much for Spanish Prime Minister Mariano Rajoy's proclamation that they would not need a bailout. Once again oil is following and the new the economic law of “bailouts are bullish” is inspiring the oil market. While no one believes that this is the end of the problems for the Spanish banks or the Eurozone as a whole, it does give oil a reason to bounce. The euro rebounded and the dollar fell and oil rallied. Still the market feels that we are going to see more action. There are worries that Italy will be the next country with their hand out and Greece will complain that Spain got a better deal than they did. The markets may soon demand more stimuli to keep this optimistic outlook. In fact it may be like that plant in Little Shop of Horrors, constantly demanding “feed me.”

Another reason to be long oil is the apparent failure of the Group of Five plus one talk. The Wall Street Journal reported that negotiations between Iran and the United Nations' nuclear watchdog appeared to break down over the issue of inspections on Friday, imperiling hopes for a broader diplomatic effort to end the international standoff peacefully. The talks between Iran and the International Atomic Energy Agency were widely seen as a precursor to a gathering of international powers in Moscow on June 18-19. Friday's outcome fueled concerns in Washington and Brussels that the second, more far-reaching, international push to curb Tehran's nuclear work is stagnating.

For oil the talks breaking down are supportive but not as bullish as it would have been if the world did not take steps to replace Iranian oil. This drama will add more intrigue to the upcoming OPEC meeting. Most believe that OPEC will try to reign in over production yet it is clear that the Saudis will do what is best for them. The Saudis are also worried about the impact that high prices may have on the viability of the cartel. With production rising in North America, the Saudis don’t want to risk losing anymore customers. Too late for Iran.

In the meantime the US is getting some stimulus in the gas tank! According to my buddy Trilby Lundberg, the average price for a gallon of regular gasoline in the United States fell 15.9 cents to $3.624 in the past three weeks due to a drop in crude oil, which took a hit from fears over Europe's economy and a stronger dollar. That put the national average for regular gasoline as of June 8 down more than 11.62 cents from the year-earlier level of $3.74 a gallon, according to the survey of some 2,500 gasoline stations in the continental United States. The price was the lowest since  Feb. 10 when it was $3.51 per gallon.

Rain in the Gulf Coast! Inventories could get wet. Look for crude to fall by 1.5 million barrels look for gas to increase by 2 million distillate by 1 runs steady.

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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