Tropical storm adds to bullish crude outlook

Number Nine, Number Nine

As if we did not have enough reasons for oil to rally, another has just developed and we'll call it Tropical Depression Number 9. A storm that has the possibility of ending up in the Gulf of Mexico can add support to a market that is finding more reasons to rally. Yesterday oil broke a bit on developments in the Eurozone as the Bundesbank tough talk ahead of the meeting was dampening hopes of a bond buying extravaganza. Oil was initially boosted by a report by German news magazine Der Spiegel who said that the ECB may set yield caps for countries in the EU. That would take a huge EU commitment and may cause commodities to sky rocket. Yet the Bundesbank also criticized the European Central Bank’s plan to embark on potentially “unlimited” government bond purchases. On top of that, we have geo-political storms brewing and extra volatility as we say good bye to the September crude contract.

Oil traders have come to realize that the Bundesbank always talks tough ahead of big meetings so that when they give a little, it looks to the market that they are giving a lot. Also the fact that the ECB denied the Der Spiegel report that the new ECB program will set yield caps. In response, the ECB issued a statement saying it is, “misleading to report on decisions which have not yet been taken.” So there! Of course setting yield caps could create commodity frenzy and would drive prices wildly higher.

Oil also is getting support from more talk of war. The Times of Israel reports that Israel’s Prime Minister Benjamin Netanyahu, “is determined to attack Iran before the U.S. elections,” Israel’s Channel 10 News claimed on Monday night, and Israel is now “closer than ever” to a strike designed to thwart Iran’s nuclear drive. In Syria, President Obama drew a line in the sand and warned that if there is any evidence that Syria’s chemical or biological weapons are being moved or used may force him to reconsider U.S. military action. The President said that, “A red line for us is we start seeing a whole bunch of chemical weapons moving around or being utilized, that would change my calculus.”

Of course all of this drama is not good for gas prices that have already had more bad luck than the Chicago Cubs. We have had refinery fires, pipeline leaks and now a gas recall in Indiana and according to Bloomberg and AAA, we are at a record high for this time of year in the U.S. after refinery breakdowns tightened supply. The $3.72-a-gallon average price of regular gasoline at U.S. retail stations is the highest for this day, and prices will likely continue breaking daily records for at least several more weeks, AAA said. Regular gasoline at the pump, averaged nationwide, about $3.72 for the past four days, according to data from the nation’s largest motoring organization. It’s the first time since April 23 that a national average in 2012 was the highest ever for the day, Michael Green, a spokesman for AAA in Washington, said in an e-mail. Prices reached a year-to-date high of $3.936 on April 4, before sliding 61¢ to $3.326 on July 1. Since then refinery shutdowns and stronger Brent crude oil boosted prices 39.4¢ to the highest level since May 16, AAA data show.

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